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other things, that Frank and Katherine had unreported “other
income” for those years in the following amounts:
Other Income
Year Frank Katherine Total
1983 $46,301 $46,301 $92,602
1984 49,261 49,261 98,522
1985 57,588 57,588 115,176
1986 54,723 54,723 109,446
1987 90,517 90,517 181,034
1988 112,803 112,803 225,606
1989 97,295 97,295 194,590
1990 145,537 145,537 291,074
Total 654,025 654,025 1,308,050
Respondent calculated the amount of unreported other income using
a source and application of funds method of reconstructing
income.
In the notices of deficiency, respondent determined further
that Frank and Katherine together had taxable Social Security
benefits of $1,287, $957, $1,385, $2,195, $2,796, and $3,129 for
years 1985, 1986, 1987, 1988, 1989, and 1990, respectively.11 In
addition, respondent increased Frank’s and Katherine’s income
from capital gains for 1985 and 1989 by $6 and $20,557,
respectively. For the years in issue, respondent treated Frank
and Katherine as co-owners of the palmistry business. Thus,
respondent determined that they each were liable for self-
employment taxes for 1983, 1984, 1985, 1986, 1987, 1988, 1989,
and 1990, of $3,338, $4,271, $4,673, $5,166, $5,387, $5,859,
11 For those years, respondent determined that Frank and
Katherine had received total Social Security benefits of $2,574,
$1,914, $2,770, $4,390, $5,591, and $6,257, respectively.
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