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MEMORANDUM FINDINGS OF FACT AND OPINION
NIMS, Judge: Respondent determined a Federal income tax
deficiency for petitioners’ 1996 taxable year in the amount of
$71,091.00. Respondent also determined an accuracy-related
penalty of $14,218.20 for 1996, pursuant to section 6662(a).
After a concession by respondent, the issues for decision
are:
(1) Whether petitioners are entitled to offset gross profits
reported on their 1996 Schedule C, Profit or Loss from Business,
by claimed cost of goods sold in an amount in excess of that
allowed by respondent;
(2) whether petitioners are entitled to Schedule C business
expense deductions in excess of the amounts allowed by
respondent; and
(3) whether petitioners are liable for the section 6662
accuracy-related penalty.
Additional adjustments made by respondent to petitioners’
exemptions, itemized deductions, earned income credit, and self-
employment tax are computational in nature and will be resolved
by our holdings on the foregoing issues.
Unless otherwise indicated, all section references are to
sections of the Internal Revenue Code in effect for the year at
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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Last modified: May 25, 2011