Robert C. and Carol S. Jacobsen - Page 4

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          and began to receive Social Security benefits.  During 1997,                
          petitioners spent a substantial amount of time at hospitals and             
          going to and from hospitals and doctors’ offices.  Mrs. Jacobsen            
          also performed services in Mr. Jacobsen’s business during 1997.             
               Petitioners deducted on Form 1040, U.S. Individual Income              
          Tax Return, Schedule C, $7,194 as “wages”, consisting of $4,000             
          in compensation and $3,194 as employee expenses of Mrs. Jacobsen.           
          The $4,000 was reported as wages by Mrs. Jacobsen on page 1 of              
          the return and thus constituted a “wash”.  The $3,194 in employee           
          expenses is allegedly vehicle expense, miscellaneous business               
          expenses, and meals and entertainment expenses, which are still             
          in issue in this case.                                                      
               Petitioners reported no income from Mr. Jacobsen’s real                
          estate business on their tax return for 1997.  In addition to the           
          $3,194 in dispute as set forth above, deductions disallowed by              
          respondent include $16,507 in car and truck expenses and $4,600             
          for legal and professional fees.                                            
               Mrs. Jacobsen was 54 years old in 1997.  She received a                
          distribution from her retirement account in the amount of                   
          $70,000.  Mr. Jacobsen was 56 years old in 1997 and received a              
          distribution from his retirement account in the amount of                   
          $35,550.  Respondent determined that each of the distributions              
          was subject to a 10-percent additional tax under section 72(t).             

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