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a. Rental Income
Respondent has stipulated that during 1987 Larry received
$14,000 in cash as rental income for use of the Sanford Property,
and that Larry included that amount in income on his 1987 tax
return. Respondent did not include the rental income as a source
of funds for 1987. See infra Appendix F.29 Accordingly, we find
that Larry’s source of funds for 1987 should be increased by
$14,000 to account for that rental income.
b. Duplication of Rental Expenses or Mortgage
Payments
In the source and application of funds analyses for Ronnie
and Sylvia for the years in issue, respondent included as
applications of funds, among other things, business expenses
claimed on their Schedules C and amounts they paid for rent or
for mortgage payments for their residences. See infra Appendices
D through I. The record indicates that Ronnie and Sylvia
operated their businesses out of their personal residences. We
believe that respondent included the portion of the rental
expenses or mortgage payments attributable to Ronnie’s business
for 1985 through 1990 and to Sylvia’s business for 1990 twice as
29 On Appendix 5 of respondent’s opening brief, Larry’s
source and application of funds analysis for 1987 reflects as
sources of funds both “Gross Receipts-Schedule E (Rental)” of
$14,000 and “Adjustments: Return Rental Income” of ($14,000).
The ultimate result of including both sources of funds was that
respondent did not credit Larry with any rental income for 1987.
For convenience, we did not show either source of funds on
Appendix F.
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