George Steve Sasser and Tammy R. Sasser - Page 6




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          month from her brother in 1996 for this purpose.                            
               Petitioners timely filed a Federal income tax return, Form             
          1040, for 1996.  Petitioners attached to their return Schedule C,           
          Profit or Loss From Business, relating to Mr. Sasser’s business.            
               On his Schedule C, Mr. Sasser reported gross receipts in the           
          total amount of $5,635.  This amount corresponds with the amount            
          of nonemployee compensation reported on a Form 1099-MISC that               
          Evans City issued to Mr. Sasser.  Insofar as his arrangement with           
          Mr. Roach was concerned, Mr. Sasser did not claim any reduction             
          in gross receipts for cost of labor, nor did he claim any                   
          deduction for subcontract labor.                                            
               In the notice of deficiency, respondent determined that                
          petitioners failed to report $8,352 of nonemployee compensation.            
          Respondent’s determination is based on a Form 1099-MISC filed by            
          Mr. Roach claiming that he paid $8,352 to Mr. Sasser in 1996.               
          Respondent sought to confirm this specific item adjustment by a             
          bank deposits analysis that demonstrated, in respondent’s view,             
          that Mr. Sasser had between $6,730 and $11,829 of unreported                
          income in 1996.                                                             
          Discussion                                                                  
               At trial, respondent called Mr. Roach as a witness and                 
          introduced Mr. Roach’s “daily planner” as an exhibit.  In                   
          respondent’s view, Mr. Roach’s testimony and records corroborate            
          the Form 1099-MISC showing the payment of $8,352 of nonemployee             






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