Gary L. and Jolene K. Pendleton - Page 6

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          understatement of tax is not a problem under our disposition of             
          this case.                                                                  
               If a taxpayer had actual knowledge of the items giving rise            
          to the deficiency, then the taxpayer will not qualify for relief            
          under section 6015(b) or section 6015(c).  Sec. 6015(b)(1)(C) and           
          (c)(3)(C).  On this record, we are convinced that both Gary and             
          Jolene knew that they were claiming unwarranted rental and other            
          business expense deductions on their 1996 and 1997 returns and              
          excessive itemized deductions on their 1996 return, and that                
          these claimed deductions led to the understatements in question.            
          Both petitioners were involved in and responsible for the                   
          preparation of their returns.  Jolene was involved in the                   
          bookkeeping of the electrician business.  Both petitioners knew             
          what the expenses of the business were.  They knew the business             
          rent deduction exceeded the amount they paid in rent for the                
          entire house they occupied.  Thus, each petitioner fails to                 
          qualify for relief under either section 6015(b) or section                  
          6015(c).  We find that neither petitioner is entitled to relief             
          under section 6015.                                                         
               Reviewed and adopted as the report of the Small Tax Case               

                                                  Decision will be entered            
                                             for respondent.                          

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