Charles R. and Dru L. Haggart - Page 4

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               Petitioners maintained one joint bank account during 1996              
          and 1997.  Using this account, petitioners deposited all wages              
          and business income and paid all business and household expenses.           
               Petitioners hired John J. Poltonowicz (Mr. Poltonowicz), a             
          certified public accountant, to prepare their 1996 and 1997                 
          Federal income tax returns.  Mrs. Haggart provided Mr.                      
          Poltonowicz with her Forms W-2, Mr. Haggart’s Forms 1099-MISC,              
          and a list of his business expenses.  For additional guidance in            
          preparing the 1996 and 1997 returns, Mr. Poltonowicz reviewed               
          petitioners’ returns from previous years which were prepared by a           
          different accountant.                                                       
               For 1996 and 1997, Mr. Poltonowicz prepared Schedules C,               
          Profit or Loss From Business, for Mr. Haggart’s business.                   
          Petitioners claimed, and respondent disallowed, the following               
          amounts on their Schedules C as deductions and cost of goods                
                                   Claimed                Disallowed                  
          Schedule C                1996      1997      1996      1997                
          Total Expenses1          $24,710   $28,863   $12,360   $14,763              
          Cost of Goods Sold       21,456    31,596    21,456    31,596               
               1 These expenses included depreciation, insurance, legal and           
          professional services, supplies, utilities, laundry, bank                   
          charges, and car and truck expenses.                                        
          It is unclear how the claimed Schedule C expenses and cost of               

          3  Respondent also determined that Mr. Haggart failed to report             
          $79 of income attributable to wages he earned in 1996 from USX              
          Corp. reported to him on a Form W-2.                                        

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