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their principal business as “Sales:Distribution”. Petitioners
reported their Schedule C income and expenses for the years in
issue as follows:
Income: 1998 1999
Gross receipts or sales $7,139 $7,061
Less: cost of goods sold 3,439 6,368
Gross income 3,700 693
Expenses:
Car/truck expenses $6,901 $6,238
Supplies 500 503
Travel 911 2,172
Meals/entertainment 742 868
Utilities 2,248 2,130
Other expenses:
Misc. business expense 325 330
Tools 7,774 4,752
Functions 2,687 2,060
Total expenses 22,088 19,053
Net profit or (loss) (18,388) (18,360)
Petitioners prepared a budget applicable to both years in
issue. According to the budget, which consists of a single
handwritten page, financing petitioners’ Amway activity would
cost $737 per month, or $8,844 per year. The expenses deducted
on petitioners’ returns are more than double the budgeted amount.
In the notice of deficiency, respondent disallowed
petitioners’ Schedule C expenses on the ground that petitioners’
Amway activity was not entered into for profit. However, to
the extent of income realized from this activity, respondent
allowed these expenses as miscellaneous itemized deductions on
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Last modified: May 25, 2011