Frank Franklin - Page 4




                                        - 3 -                                         

               Some of the facts were stipulated.  Those facts and the                
          accompanying exhibits are so found and are incorporated herein by           
          reference.  Petitioner's legal residence at the time the petition           
          was filed was Taft, California.                                             
               Petitioner was engaged in a loan brokerage business, wherein           
          he arranged mortgage loan refinancing between customers and                 
          various lending institutions.  He conducted this activity for               
          approximately 16 years.  Petitioner received commissions for his            
          services based on varying percentages of the amount of the loans            
          involved.  At the time of trial, petitioner was no longer engaged           
          in this activity.                                                           
               Petitioner and his wife, Freddie T. Franklin, filed a joint            
          Federal income tax return for 1996.  The income and expenses                
          related to petitioner's loan brokerage business were reported on            
          a Schedule C, Profit or Loss From Business.  For 1996, petitioner           
          and his spouse reported on Schedule C gross income of $15,100,              
          expenses of $28,223, and a net loss of $13,123.  In the notice of           
          deficiency, respondent adjusted some of the expenses as follows:            









               3(...continued)                                                        
          petitioner contended otherwise.                                             





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