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accuracy-related penalty of $396.20 in petitioners’ 1998 Federal
income tax. This Court must decide: (1) Whether petitioners are
entitled to deduct expenses claimed on Schedule C, Profit or Loss
From Business, and (2) whether petitioners are liable for the
accuracy-related penalty under section 6662(a).
Some of the facts in this case have been stipulated and are
so found. Petitioners resided in San Mateo, California, at the
time they filed their petition.
During taxable year 1998, petitioner Gregory C. Lam
(petitioner) purportedly was involved in three businesses:
project management, photography, and construction. In connection
with these businesses, petitioners attached three Schedules C,
Profit or Loss From Business, to their 1998 Form 1040, U.S.
Individual Income Tax Return. The deductions claimed on the
Schedule C relating to petitioner’s photography business are not
at issue. Respondent disallowed deductions claimed on the other
two Schedules C because petitioners did not establish that the
claimed expenses were paid or incurred during taxable year 1998
or that the expenses were ordinary and necessary to petitioner’s
businesses.
On the Schedule C pertaining to petitioner’s project
management business, petitioner reported gross income of $250 and
a net loss of $6,695. Respondent disallowed deductions claimed
on that Schedule C for car and truck expenses of $755,
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