Dennis J. and Carol R. Kraus - Page 19

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               Petitioners maintained computer records for the disputed               
          deduction items.  Those items included deductions claimed on                
          Schedules C and separate home office expenses.  We decided that             
          petitioners were not entitled to home office deductions.  We also           
          decided that petitioners were not entitled to itemized deductions           
          in excess of those respondent conceded.  We note that the amount            
          of itemized deductions respondent conceded represented                      
          substantially all of the home office deductions petitioners                 
          claimed.  With respect to petitioners’ claimed Schedule C                   
          deductions, we found that petitioners were not entitled to them             
          because of the characterization of petitioner’s relationship with           
          IBC as an employee, rather than as an agent or self-employed                
          individual.6  That characterization is based on complex concepts.           
          Under the circumstances, we hold that petitioners acted with                
          reasonable cause and in good faith.  Accordingly, petitioners are           
          not liable for a section 6662(a) penalty for 1997 or 1998.                  
               To reflect the foregoing,                                              

                                             Decision will be entered                 
                                        under Rule 155.                               

               6 It also appears that a small portion of the deductions               
          petitioners claimed on their Schedules C was conceded by                    

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