Gregory C. and Phyllis Lam - Page 3

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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            
               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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