Stephen P. Pacileo - Page 4




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               Petitioner married Dawn Denise Stephens (Ms. Stephens) some            
          time prior to the year in issue.  They separated in January 1998            
          when petitioner moved from the house in Texas where he and Ms.              
          Stephens were living at the time.  As petitioner describes the              
          event, he left with only the clothes he was wearing and his young           
          daughter.  Divorce proceedings were instituted by petitioner                
          during 1998.  In connection with the divorce proceedings,                   
          petitioner was deposed on September 18, 1998 (the deposition).              
          Petitioner and Ms. Stephens were divorced on October 29, 1998.              
               Petitioner filed a timely 1998 Federal income tax return.              
          He included a Schedule A, Itemized Deductions, and a Schedule C,            
          Profit or Loss From Business, with that return.  On the Schedule            
          A he claimed, among other things, a $17,373 theft loss deduction.           
          On the Schedule C, petitioner identified his business as “MFG               
          Heat Equipment” and reported a net loss of $9,783.                          
               The examination of petitioner’s 1998 return began after                
          July 22, 1998.  In the notice of deficiency that resulted from              
          that examination, respondent disallowed the theft loss deduction            
          and most of the deductions claimed on the Schedule C.  Respondent           
          also determined that the underpayment of tax required to be                 
          shown on petitioner’s 1998 return is due to negligence.  Other              
          adjustments made in the notice of deficiency are not in dispute.            










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