Jimmy A. Prince - Page 5

                                        - 5 -                                         
               Finance charges             727         -0-        982                 
               Other                       530         -0-        -0-                 
               Interest expense            529         -0-        726                 
          112,500     127,117    136,951                                              
          Profit (loss)                 (9,614)     17,109        954                 
          The “Salary expense” represented payments which Jasmak made to              
          petitioner for his services.  Petitioner now acknowledges that              
          the deduction of these payments was improper.                               
               In 2000, the Commissioner began auditing petitioner’s 1997             
          through 1999 taxable years.  As a result of this audit, the                 
          Commissioner increased (decreased) petitioner’s reported taxable            
          income as follows and reflected these adjustments in the subject            
          notice of deficiency mailed to petitioner on February 21, 2002:             
          1997       1998      1999                                                   
          Self-employment income:                                                     
          Unreported gross receipts     $16,338    $26,631    $24,988                 
          Self-employment expenses:                                                   
          Advertising                     5,952        -0-      2,610                 
          Commissions                    19,261     23,397     24,105                 
          Depreciation                    1,315      4,801      4,848                 
          Insurance                       3,428      4,785      6,097                 
          Legal                           2,410      8,240      7,174                 
          Purchases                      52,174    127,641    100,764                 
          Returns and allowances            -0-      6,760        -0-                 
          Salary                         11,000     20,200     22,000                 
          Sales tax                       3,118      2,985      3,226                 
          Telephone                       4,439      5,307      5,770                 
          Transportation                  1,767      1,040      1,530                 
          Other items of income:                                                      
          NOL carryover                     -0-     37,181        -0-                 
          AGI adjustments:                                                            






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