Michael H. Visin and Natalie Marselly - Page 5

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               In reporting gross income from his sole proprietorship for             
          1998, petitioner Michael H. Visin reduced gross receipts by cost            
          of goods sold.  In part III of his Schedule C for 1998,                     
          petitioner Michael H. Visin claimed cost of goods sold as                   
                    Materials and supplies      $2,847.30                             
                    Other costs: computer                                             
                    equipment and software   +3,450.00                                
                    Cost of goods sold           6,297.30                             

               Petitioners did not attach to their 1998 income tax return a           
          Form 4562, Depreciation and Amortization.  Part I of that form is           
          entitled “Election To Expense Certain Tangible Property (Section            
          179)”, and it is the form that respondent has designed for                  
          taxpayers who wish to expense, rather than depreciate, qualifying           
               In the notice of deficiency, respondent disallowed a portion           
          of the deduction claimed by petitioners in 1997 and 1998 for the            
          business use of their apartment.  Respondent based the                      
          disallowance solely on the limitation on deductions set forth in            
          section 280A(c)(5).  Respondent did not adjust either the gross             
          amount claimed by petitioners for the rental of their apartment             
          or the business use percentage appearing on either Form 8829.               

          discrepancies between petitioners’ Form 8829 for 1997 and Form              
          8829 for 1998 regarding “Area used * * * for business” and “Total           
          area of home”.                                                              

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