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On a date not disclosed by the record, Chicken Bar, an S
corporation, issued petitioner Schedule K-1, Shareholder’s Share
of Income, Credits, Deductions, etc., for 1995. That schedule
indicated, inter alia, that petitioner’s pro rata share of
Chicken Bar’s ordinary loss from trade or business activities
(Schedule K-1 loss) was $19,412.
On a date not disclosed by the record, petitioner filed Form
1040X, Amended U.S. Individual Income Tax Return (Form 1040X),
for 1995. In Form 1040X for 1995, petitioner claimed, inter
alia, the Schedule K-1 loss of $19,412 attributable to Chicken
Bar and a refund of $5,937. On February 3, 1997, the Internal
Revenue Service sent petitioner a refund of $5,937 with respect
to his 1995 tax year.
Notice of Deficiency
In the notice of deficiency (notice) issued to petitioner
for 1995, respondent determined, inter alia, to disallow $19,212
of the $19,412 Schedule K-1 loss that petitioner claimed in the
1995 Form 1040X on the ground that petitioner did not materially
participate in the Chicken Bar business within the meaning of
section 469(h)(1). Respondent further determined to disallow
petitioner’s claimed traveling expenses of $4,896 on the ground
that petitioner “did not prove that the amount shown [$4,896] was
(a) rental expense, and (b) paid”.
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