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received $16,511 of Form W-2 wages and tip income from working at
2 restaurants during 1997.
On petitioners’ 1997 tax return they reported other income
of $2,250 related to self-employment income that petitioner
received from L.A. Models Inc. In the description field of line
21, Other income, on the 1997 Form 1040 tax return, petitioners
reported that the $2,250 was income from Schedule C, Profit or
Loss From Business. However, petitioners did not submit a
Schedule C with their 1997 tax return.
On petitioners’ 1997 Schedule A, Itemized Deductions, they
claimed a total of $34,430 of miscellaneous itemized deductions.
Except for a tax preparation fee of $450, the $34,430 consists of
unreimbursed business expenses. At trial, petitioners presented
a schedule individually listing each of their business expenses
for the 1997 tax year, which totaled $41,972.84. The $41,972.84
of business expenses consists of the $34,430 deducted on Schedule
A and an additional $7,542.84 of business expense that was not
deducted on the 1997 tax return. At trial, the Court directed
respondent to meet with petitioners and attempt to resolve the
substantiation issue related to the additional business expenses
on petitioners’ schedule.
In respondent’s status report filed after the conclusion of
the trial while the record was still open, respondent
acknowledged that petitioners presented documents substantiating
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