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Respondent determined that the payments Ms. Potter received
from Smith, as reported to the IRS on a Form 1099, are unreported
income. Respondent's position is that the payments must be
considered payments for services rendered because petitioners
failed to provide any documentation that they were reimbursements
for out-of-pocket expenses.
Petitioners' position is twofold. First, petitioners argue
that because similar checks from Smith were not treated by the
IRS in 1997 as income, that they should not now be treated
differently. Each taxable year, however, stands alone, and the
Commissioner may challenge in a succeeding year what was condoned
or agreed to in a former year. Rose v. Commissioner, 55 T.C. 28
(1970). Thus, a taxpayer must follow the reporting requirements
in any given taxable year to be entitled to deduct or exclude
certain expenses from income, even if the Commissioner did not
challenge a similarly claimed deduction in a prior year. As a
result, what occurred in relation to petitioners' 1997 taxes is
inapposite to the decision in this case.
Second, petitioners argue that they did not include in
income the $3,038 received from Smith because it was a
reimbursement for out-of-pocket expenses that were related to the
administration of the after-school program. This Court is not
bound to accept a taxpayer's self-serving, unverified, and
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Last modified: May 25, 2011