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year in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
Respondent determined a deficiency of $15,195 in
petitioners’ Federal income taxes for 1997. The deficiency
resulted from disallowance of deductions for car and truck
expenses, legal and professional expenses, and salaries and wages
claimed on Schedule C, Profit or Loss From Business, attached to
petitioners’ Federal income tax return. Respondent made
adjustments to petitioners’ Schedule A, Itemized Deductions, and
determined that petitioners were liable for a 10-percent
additional tax on each petitioner’s distribution from a
retirement plan. After concessions, the issues remaining for
decision are whether petitioners have adequately substantiated
expenses subject to section 274(d) or for legal and professional
fees claimed and whether the additional tax imposed on early
distributions under section 72(t) applies to the distributions
received from their retirement plans.
Background
Petitioner Robert C. Jacobsen (Mr. Jacobsen) was licensed to
sell real estate in Arizona and New Jersey prior to and during
1997. Petitioner Carol S. Jacobsen (Mrs. Jacobsen) was employed
prior to 1995 as an executive secretary. In 1995, Mrs. Jacobsen
was diagnosed with a heart condition, and a heart transplant was
recommended. Mrs. Jacobsen had to give up her regular employment
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