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19951 1996 1997
Gross income $85,151 $112,626 $126,764
Total expenses 96,344 112,589 128,520
Net profit/loss (11,193) 37 (1,756)
1 As amended.
G. Notices of Deficiency
On January 31, 2001, respondent timely mailed to the Hubers
a statutory notice of deficiency for 1995, 1996, and 1997 (the
Huber notice of deficiency). Also on January 31, 2001,
respondent timely mailed to Waterfall Farms a statutory notice of
deficiency for its fiscal years ended November 30, 1995, 1996,
and 1997 (the Waterfall Farms notice of deficiency).
In the Waterfall Farms notice of deficiency, respondent
disallowed the food, lodging, and medical expenses deducted by
Waterfall Farms, totaling $1,224 for 1995, $1,297 for 1996, and
$16,713 for 1997. Respondent determined that (1) Waterfall Farms
failed to establish that the food and lodging expenses were
ordinary and necessary business expenses under section 162 and
(2) those items are the Hubers’ personal expenses. Respondent
further determined that Waterfall Farms was liable for the
accuracy-related penalty under section 6662(a).
In the Huber notice of deficiency, respondent determined
that payments by Waterfall Farms of the Hubers’ food, lodging,
and medical expenses resulted in constructive dividends as
follows:
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Last modified: May 25, 2011