Raymond J. and Ilene H. Pavelko - Page 12

                                       - 11 -                                         
               Even before deducting expenses, petitioner derived no                  
          significant income from either of the mental health-related                 
          activities.  Petitioner reported gross receipts from videotape              
          sales of $76 in 1996, for a gross profit of $52 after cost of               
          goods sold of $24.  However, it is unclear how petitioner could             
          have made this profit.  He testified that he sold videotapes, but           
          he did not explain whether he made these tapes or purchased them            
          for resale.  He also testified that they were available for $20             
          retail or by mail order for $24.  If petitioner purchased and               
          resold these tapes, it is unclear how his cost of goods sold was            
          $24 (which would imply only one tape resold at $76).  If                    
          petitioner was a sales agent for the manufacturer, it is unclear            
          how his gross receipts were $76 (with individual sales of $20 or            
          $24).  Petitioner later testified that the videotapes were made             
          available for sale in a catalog in which they sold for $59.95               
          each, and for which he received payment of $24 each.  This                  
          testimony likewise does not explain petitioner’s gross receipts             
          and cost of goods sold.                                                     
               Petitioner also reported gross receipts of $1,320 in 1998.             
          However, petitioner testified that he was uncertain of the source           
          of this income and that he had not experienced a “significant               
          increase” in his sales of videotapes in 1998.  Finally,                     
          petitioner reported gross receipts of $10 in 1999.  Petitioner              
          testified that this amount was received as payment for his                  

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