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petitioner as a train operator and his wife, Karen Arhontes, as
an administrative analyst. Also during the year at issue,
petitioner operated Spanky's, through which he bought and sold
sports trading cards and various types of collectible
memorabilia. Petitioner began operating Spanky's at a retail
location in Dublin, California, during 1990. Sometime between
the middle and end of 1992, petitioner closed that location and
moved the operation into his personal residence because he was
considering entering into a construction business with his
brothers. Petitioner began his employment with BART in December
1994. He continued to operate Spanky's out of his home until he
sold all of the remaining inventory and discontinued the business
during 1997, the year at issue in this case. The operation of
Spanky's was discontinued because petitioner had experienced a
series of net losses in recent years and had been offered $9,875
for the purchase of the entire remaining inventory of Spanky's.
On their joint Federal income tax return for 1997,
petitioners included a Schedule C, Profit or Loss From Business
(Schedule C), in connection with Spanky's. On this Schedule C,
petitioners reported $9,875 in gross receipts that they reduced
by $38,897 in cost of goods sold, resulting in a negative gross
income of $29,022. Petitioners also claimed Schedule C
deductions for car and truck expenses of $275 and depreciation of
$22, resulting in a reported net loss of $29,319.
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