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Respondent determined a deficiency in petitioners’ 1995
Federal income tax of $14,504 and a penalty under section 6662(a)
for negligence of $2,901. After concessions,2 the issues are (1)
whether petitioner Hubert Swaringer (petitioner) had unreported
income of $24,316; (2) whether petitioner is entitled to Schedule
C deductions in amounts greater than those allowed by respondent;
and (3) whether the negligence penalty is applicable.
Petitioners resided in Philadelphia, Pennsylvania, at the time
the petition was filed and during the year at issue.
The facts may be summarized as follows. Petitioner Flora M.
Swaringer (Mrs. Swaringer) was employed as a secretary and was
paid a salary of $44,271 in 1995. Petitioner was the pastor of
the United House of Prayer for All People (the church) in New
York, New York. The parties stipulated that petitioner was not
an employee of the church and was self-employed. Petitioner was
paid from the “offerings” of the congregation. On Schedule C,
Profit or Loss From Business, relating to petitioner’s ministry,
petitioners reported $28,600 as income from the church. Neither
petitioners nor the church maintained records of the “offerings”.
Respondent used a so-called bank deposits analysis to verify
petitioners’ income. That analysis showed the following:
2 Petitioners concede that they failed to report dividend
income of $629. Respondent concedes that the unreported income
should be reduced by $2,343 resulting from nontaxable bank
transfers.
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