David M. Priestly, Jr. - Page 3

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          each Schedule C.  Together with the wage income referred to above           
          and $30 in dividend income, the losses reported on the Schedules            
          C are taken into account in the adjusted gross income of $11,037            
          reported on petitioner’s return.                                            
               A personal exemption deduction, two dependency exemption               
          deductions, and the standard deduction applicable to a head of              
          household are subtracted from the adjusted gross income and                 
          result in reported taxable income of $787.  Applying the section            
          1 income tax rate applicable to a head of household, petitioner             
          reported an income tax liability of $118, which was reduced to              
          zero by a claimed credit for child and dependent care expenses.             
          A $754 earned income credit was claimed, which gave rise to a               
          refund in the same amount.                                                  
               Petitioner was married as of the close of 1988.  His spouse,           
          Debra A. Priestly, was employed as a registered nurse during                
          that year.  Her untimely 1988 Federal income tax return, which              
          was prepared by petitioner, was filed in late September 1989.               
          The return shows the Diamond Bar address as her home address.               
          The income reported on the return includes wages of $26,379,                
          interest of $99, and dividends of $303.  Included with her                  
          return is a Schedule C for a business described as a “property              
          management” service.  With one minor exception, the income and              
          deductions reported on this Schedule C are identical to the items           
          reported on the “property management” Schedule C included with              

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