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reporting income from a palmistry business.6 The Schedules C for
the years in issue reported the following gross receipts,
expenses, and net income from the palmistry business:
Gross Business Net
Year Receipts Deductions Income
1983 $20,160 $12,428 $7,732
1984 20,500 11,809 8,690
1985 28,500 17,732 10,768
1986 33,800 23,904 9,896
1987 36,325 26,453 9,872
1988 39,455 25,319 14,136
1989 40,310 19,797 20,513
1990 40,820 17,912 22,909
On their returns for the years in issue, Larry and Nancy
reported the following interest income, Schedule E Supplemental
Income and Loss income or loss,7 income from capital gains,
income from gambling, miscellaneous income, and adjusted gross
income:
6 The Schedule C for 1983 listed Larry and Nancy as the
proprietors of the palmistry business, and the Schedule SE, Self-
Employment Tax, identified Larry and Nancy as the self-employed
persons. The Schedules C for 1984 through 1990 listed Larry as
the proprietor and the Schedules SE for 1984 and 1986 through
1990 identified Larry as the self-employed person. No Schedule
SE was included with the copy of the 1985 return admitted into
evidence at trial. The Schedules C for 1983 through 1985 showed
a business name for the palmistry business of “Madam Nancy”. The
Schedule C for 1986 did not show a business name. The Schedules
C for 1987 through 1990 showed a business name of “Madam Bessie”.
Larry testified at trial that he did not actively participate in
the palmistry business operated by Nancy.
7 For 1984 through 1990, the Schedules E reported losses
from rentals. The net loss for 1990 also included a loss from
Johnson’s Limousine Service, Inc., an S corporation.
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