- 8 -
As discussed above, the business promotion expense
deductions were adjusted by respondent to reflect the 50-percent
limitation under section 274(n). The cause for the adjustment to
the tax and license deductions is not as clear because petitioner
concedes this issue and it was not argued at trial. Petitioner
claimed deductions of $7,517 in 1996 and $4,323 in 1997;
respondent allowed only $2,454 and $1,412, respectively. Neither
petitioner’s tax return nor respondent’s notice of deficiency
enumerates the individual expenses constituting the total claimed
and allowed deductions for taxes and licenses. Respondent,
however, argues in his trial memorandum that the totals were
derived from the following with respect to 1996:3
Claimed Allowed
Federal income tax withholding $1,300 $-0-
Employees’ FICA 1,829 -0-
Employer’s FICA 1,829 1,829
FUTA 121 121
State income tax withholding 165 -0-
State unemployment insurance 377 377
State employee training tax 15 15
State disability insurance 191 -0-
Licenses 112 112
Petitioner’s Federal income tax 1,578 -0-
7,517 2,454
Petitioner primarily argues that he is not liable for the
negligence penalty because he relied on his tax return preparer.
Limiting our review to the two items for which respondent found
petitioner to be negligent, we agree with petitioner. Blind
3Some of the corresponding individual amounts were
stipulated by the parties as having been paid.
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