Frank Franklin - Page 5




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          Claimed         Amount          Amount                                      
          Expense         on Return        Allowed       Disallowed                   
          Outside services      $ 7,300         $ 2,500         $4,800                
          Appraisal fees          1,500           1,100            400                
          Telephone               1,743           1,200            543                
          Postage                   618             400            218                
          Rent                    4,860           4,400            460                
          Car & truck expenses    5,772           3,960          1,812                
          Totals               $21,793         $13,560         $8,233                 

          No adjustments were made as to the reported gross income or the             
          other Schedule C expenses.  The adjustments shown above were                
          disallowed for lack of substantiation.4                                     
               Section 162(a) allows a deduction for the ordinary and                 
          necessary expenses paid or incurred during the taxable year in              
          carrying on a trade or business.  An expense must be ordinary and           
          necessary within the meaning of section 162(a).  Deputy v.                  
          duPont, 308 U.S. 488, 495 (1940).  A taxpayer is required to                
          maintain records to establish the amount of income and deductions           
          claimed on a return.  Sec. 6001; sec. 1.6001-1(a), Income Tax               
          Regs.                                                                       

               4    Petitioner did not participate in the audit process due           
          to his incarceration for a criminal infraction associated with              
          his loan brokerage business.  Freddie T. Franklin, petitioner's             
          wife, presented substantiating information to respondent during             
          the audit process that resulted in the expenses allowed shown               
          above.  Prior to issuance of the notice of deficiency, Mrs.                 
          Franklin applied for and was administratively granted relief from           
          joint liability for the 1996 tax year, presumably under sec.                
          6015.  None of the documentation surrounding Mrs. Franklin's                
          relief was offered into evidence, and petitioner raised no                  
          objection in this case toward the granting of relief to his                 
          spouse.  Respondent did not issue a notice of deficiency to Mrs.            
          Franklin.                                                                   




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Last modified: May 25, 2011