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does not disclose the source of funds petitioner used to repay
the loan.
During 1994, petitioner deposited $187,574 into the trust
bank account, which included the 12 checks of J&J Trucking
previously described. The 1994 fiduciary return for the living
trust reported total gross income of $58,859, consisting of:
Interest $70, rental income from Onyx property $26,359, and
rental income from 31st Street property $32,430.
Statutory Notice Adjustments and Respondent’s Concessions
1992 Individual Return
On October 7, 1996, respondent issued a notice of deficiency
(1992 notice) to petitioner determining a deficiency, addition,
and penalty for the year ended December 31, 1992. After
concessions,4 respondent has continued to assert adjustments for
the following items: (1) Unreported interest income of $5,599
from J&J Trucking, (2) unsubstantiated NOL carryforward of
$148,367 to 1992, (3) unsubstantiated cost of goods sold
reduction of $890,5005 related to petitioner’s Schedule C
4 Respondent conceded that petitioner was entitled to deduct
capital losses of $3,000, was not subject to tax on $38,048 of
deposits made to the living trust, and was not subject to self-
employment tax because he had no self-employment income in 1992.
5
As previously stated, petitioner claimed an offset for cost of
goods sold of $925,500 on his Schedule C for 1992. The parties
agree that petitioner is not entitled to a reduction for cost of
goods sold because petitioner did not produce goods. However,
petitioner established, and the 1992 notice of deficiency
reflects that respondent allowed, a business deduction for
(continued...)
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