James J. Hogan - Page 6




                                        - 5 -                                         
               On his Schedules C, petitioner claimed total deductions, as            
          follows:                                                                    
               1996            1997                                                   
               Advertising               $3,324          $2,849                       
          Car and truck              6,673           5,772                            
          Depreciation              13,303          13,176                            
               Insurance                  2,791           1,374                       
               Interest                                                               
               Mortgage                 6,744           6,368                         
          Other                    3,726           3,442                              
          Legal and professional                                                      
          services                 3,686           4,047                              
          Office expense               109             396                            
               Repairs and maintenance    8,720            - 0 -                      
          Supplies                   - 0 -           2,510                            
               Taxes and license          1,810           4,568                       
               Travel/Meals               1,103             917                       
               Utilities                  3,643           6,008                       
          Other expenses             1,825           1,796                            
          Total                  $57,457         $53,223                              
          It appears from an examination of these deductions that many of             
          them were personal, nondeductible expenses.  Sec. 262.  For                 
          instance, petitioner admitted that he did not use an attorney in            
          the day-to-day operations of the bed and breakfast.  Petitioner             
          claimed that there were a “lot of other issues that came up where           
          my ex-wife was attacking my use of the property as a bed and                
          breakfast.”  As stated, petitioner had purchased his former                 
          wife’s interest in the property prior to the start of the bed and           
          breakfast activity.  He deducted part of these legal expenses on            
          his Schedules C.                                                            
               At trial, respondent asserted that “petitioner’s bed and               
          breakfast activity was a homegrown tax shelter to shelter his W-2           






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