Greg McIntosh and Sheila R. McIntosh - Page 18

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               We are persuaded that respondent's positions on the above              
          issues were reasonable.  Respondent's positions were based on               
          petitioners' failure to fully substantiate or account for the               
          respective items.  Further, the issues were settled within a                
          reasonable time after petitioners gave sufficient information to            
          respondent.  See Harrison v. Commissioner, 854 F.2d 263, 265 (7th           
          Cir. 1988), affg. T.C. Memo. 1987-52; Wickert v. Commissioner,              
          842 F.2d 1005 (8th Cir. 1988), affg. T.C. Memo. 1986-277; Ashburn           
          v. United States, 740 F.2d 843 (11th Cir. 1984); McDaniel v.                
          Commissioner, supra.                                                        
                    Reasonable Basis in Law                                           
               According to petitioners, respondent unreasonably determined           
          that car and truck, insurance, office, and utilities expenses               
          totaling $2,008.06 incurred in 1995 were not deductible expenses            
          but instead must be capitalized into the cost of the Vallecito              
          property sold in 1996.  Petitioners appear to argue that                    
          respondent's position was legally infirm, although their argument           
          seems to be inconsistent with the "informal agreement" they urge            
          for the treatment of similar 1994 expenses as capital                       
               Although petitioners did not maintain a set of books and               
          failed to provide an accounting of the expenses associated with             
          their home-building activity, they reported a reduction of                  
          $77,462 of Schedule C gross receipts for "cost of goods sold" in            
          connection with their home-building activity for 1996.  Because             

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