Bruce A. and Kathy J. Krist - Page 2




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                         OPINION OF THE SPECIAL TRIAL JUDGE                           
               PAJAK, Special Trial Judge: Respondent determined a                    
          deficiency of $5,977 in petitioners' Federal income tax for 1995            
          and a section 6651(a)(1) addition to tax of $219.60.  Unless                
          otherwise indicated, section references are to the Internal                 
          Revenue Code in effect for the year in issue, and Rule references           
          are to the Tax Court Rules of Practice and Procedure.                       
               Respondent, in an answer to the amended petition filed                 
          herein, claims an increased deficiency of $12,030 and an                    
          increased section 6651(a)(1) addition to tax of $522 for 1995.              
          The parties have stipulated that petitioners incurred at least              
          $2,890 in advertising and telephone expenses deductible under               
          section 162(a) which relate to the locksmith business of Bruce              
          Krist (petitioner).                                                         
               We must decide:  (1) Whether petitioners are entitled to               
          deduct the remaining disallowed Schedule C expenses of $19,976              
          ($22,866 total disallowed minus $2,890) for the locksmith                   
          business; (2) whether petitioners had $19,640 of unreported                 
          income for 1995 in the form of unexplained bank deposits; (3)               
          whether petitioners had $14,093 of additional unreported income             
          in the form of unexplained bank deposits, an issue raised for the           
          first time on brief; (4) whether petitioners are entitled to a              
          casualty loss of $15,800 for the seizure and destruction of the             
          guns held for their alleged firearms business; and (5) whether              





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