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The first set of issues in this case concerns whether
petitioner realized gross receipts from her sole proprietorship
in excess of that reported on her returns. The second set of
issues deals with whether petitioner is entitled to various
deductions for business expenses which petitioner claimed on
Schedule C, Profit or Loss From Business, for the years in issue.
Finally, we must decide whether petitioner is liable for the
additions to tax and penalties determined by respondent.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Background
At the time the petition was filed in this case, petitioner
resided in or near Ketchum, Idaho. During the years at issue,
petitioner operated a sole proprietorship through which she
provided cosmetology services. Petitioner performed this work
out of her condominium apartment as well as at the homes of her
clients.
In addition to providing services as a cosmetologist,
petitioner developed a new line of business in the field of
micropigmentation. As explained by petitioner, micropigmentation
involves the changing of human body colors through the use of
certain injected dyes. Micropigmentation is used not only in the
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