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1994, as amended, totaled $252,056, which included $14,506 for
advertising costs, $9,825 for car and truck expenses and $45,217
for other expenses such as $44,434 in rent, $770 in management
fees, and $13 in bank fees; and (2) Schedule C deductions for
1995, as amended, totaled $284,380, which included $16,161 for
advertising expenses, $7,171 for car and truck expenses and
$29,743 for other expenses, such as $4 in bank charges and
$28,671 in rent.
Subsequent to the filing of these amended returns, Internal
Revenue Agent Francisco Rangel met with petitioner at her office
to discuss her claimed Schedule C deductions. At this meeting,
no documents passed from petitioner to Mr. Rangel. However,
based on the conversation with petitioner and observations he
made at her office, Mr. Rangel allowed some of her claimed
deductions.
On November 6, 2000, respondent issued a statutory notice of
deficiency to petitioner for her 1994 and 1995 tax years.
OPINION
We consider here whether petitioner is entitled to Schedule
C deductions in excess of those allowed by respondent and whether
petitioner is liable for the accuracy-related penalties under
section 6662(a).
I. Substantiation of Schedule C Deductions
Section 162 permits a deduction for ordinary and necessary
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