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Department. Mrs. Corcoran received $25,761 from the Roman
Catholic Bishop of San Diego with respect to her teaching job.
Petitioners also received interest on their bank account
balances. In total, petitioners received compensation for
services of $44,803, unemployment compensation of $168, and
interest of $426. Petitioners jointly filed a 1998 Federal
income tax return. They filled in lines 7 through 56 of their
Form 1040, U.S. Individual Income Tax Return, with a zero on each
line and claimed a refund of $937.90. Petitioners attached to
their tax return a Form W-2, Wage and Tax Statement, reporting
wages of $25,761 from Mrs. Corcoran’s employer. Respondent
treated the $25,761 as if it were properly reported on the tax
return.
Petitioners stipulated that they received all the amounts
that their employers reported to the Internal Revenue Service on
Forms W-2, as wages or compensation paid to them. However,
petitioners refused to stipulate that such amounts constitute
wages. Petitioners also stipulated that they received all of the
unemployment compensation and interest that respondent determined
were income. Petitioners do not challenge the facts on which
respondent’s determinations are based or respondent’s calculation
of tax. Rather, petitioners, by selectively analyzing statutes,
regulations, and judicial authorities out of context, have
reached the conclusion that their compensation for services,
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