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stock dispositions discussed above; (3) a nonpassive loss of $827
from Submarine 21; and (4) a net operating loss carryover of
$7,724. Petitioner did not report any wages or salary income.
The examination of petitioner’s 1995 return resulted from
respondent’s receipt of four Forms 4789, Currency Transaction
Report, from Valley Credit Union reporting the cash deposited by
petitioner into the checking account in January of 1995.
Petitioner met with respondent’s agents several times during the
course of the examination. Respondent’s agents reviewed the
monthly statements for the checking account, petitioner’s check
register, and the records from the brokerage account. Petitioner
was asked to identify the sources of the cash deposits. He told
the agents that one of the cash deposits came from the sale of an
automobile and the other cash deposits resulted from gifts from
family members.
In the notice of deficiency, respondent determined that the
cash deposits represent income to petitioner. Respondent further
determined that such income constitutes net earnings from self-
employment within the meaning of section 1402 and is therefore
subject to the self-employment tax imposed by section 1401.
Lastly, respondent determined that the underpayment of tax
required to be shown on petitioner’s 1995 return is due to
negligence and imposed a penalty under section 6662(a).
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Last modified: May 25, 2011