Greg McIntosh and Sheila R. McIntosh - Page 17

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                    Legal and Professional Expenses                                   
               Respondent disallowed a deduction for a legal fee expense              
          and a tax preparation fee expense for 1996.  After consideration            
          of information sent in by petitioners on September 2, 1999,                 
          respondent conceded most of the adjustment.                                 
                    Utilities Expenses                                                
               On Schedules C of their 1995 return, petitioners claimed               
          $547 as an expense for utilities at the Vallecito property.                 
          Because respondent had evidence that petitioners had resided at             
          the Vallecito property, he took the position that the utilities             
          expense was a nondeductible personal living expense.  Petitioners           
          had submitted statements from individuals indicating that                   
          petitioners did not reside at the property.  As late as                     
          November 17, 1999, Appeals requested additional information                 
          concerning the occupation of the Vallecito property.  For                   
          settlement purposes, respondent conceded his position although              
          the evidence remained ambiguous.  See Creske v. Commissioner,               
          T.C. Memo. 1990-318, affd. 946 F.2d 43 (7th Cir. 1991).                     
               It was reasonable for respondent to make adjustments for               
          items and to refuse to concede the adjustments until he had                 
          received and verified petitioners' substantiation for the amounts           
          adjusted.  See Beecroft v. Commissioner, T.C. Memo. 1997-23;                
          Simpson Fin. Servs., Inc. v. Commissioner, T.C. Memo. 1996-317;             
          McDaniel v. Commissioner, T.C. Memo. 1993-148.                              

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