William F. Middleton - Page 8




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               After this case was commenced, petitioner and respondent met           
         and exchanged information and documents which resulted in                    
         respondent’s concession of the income tax deficiency and the                 
         section 6663(a) fraud penalty for petitioner’s 1989 tax year.                
         The remaining issues we must consider are (1) whether petitioner             
         is entitled to Schedule C deductions in excess of those allowed              
         by respondent; (2) whether petitioner is liable for the fraud                
         penalty for 1990 or 1991; (3) as an alternative to fraud, whether            
         petitioner is liable for the negligence penalty for 1990 or 1991;            
         (4) for 1991, whether petitioner is liable for the negligence                
         penalty for the omission of interest income and/or claiming a                
         loss from the sale of a taxi; and (5) whether petitioner is                  
         liable for a late-filing addition to tax for 1991.                           
         I.  Is Petitioner Entitled to Business Deductions in Excess of               
         the Amounts Allowed by Respondent?                                           
               Petitioner claimed business deductions of $211,875 and                 
         $254,787 for his 1990 and 1991 tax years.  Respondent’s agent                
         examined records provided by petitioner and allowed petitioner               
         business deductions of $127,879 and $157,207 for the 1990 and                
         1991 tax years, respectively.  Accordingly, petitioner’s business            
         deductions in the amounts of $83,996 and $97,580 for 1990 and                
         1991, respectively, remain in dispute.                                       
               Deductions are strictly a matter of legislative grace, and             
         taxpayers must comply with specific requirements for any                     
         deduction claimed.  See INDOPCO, Inc.  v. Commissioner, 503 U.S.             





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