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2. Nondeductible Personal Expenses
a. Petitioners’ Leather Goods Purchases
In 1987 and 1988, Mr. Jacobsen purchased $3,770 of leather
goods for resale each year. Mr. Del Bosque purchased $13,298 of
leather goods for resale in 1987, $3,862 for resale in 1988, and
$2,375 for resale in 1989. Respondent treated amounts paid by
petitioners to North Beach Leathers as nondeductible personal
expenses. These were not personal expenditures but rather
expenditures for leather goods purchased and resold. Although
petitioners did not maintain any records of their purchases, a
few receipts were obtained from North Beach Leathers. The
receipts show that within a month petitioners purchased numerous
jackets in various sizes; the number of jackets purchased
supports petitioners’ assertions that the jackets were not for
personal use but rather for resale. Petitioners’ leather goods
sales activities are further confirmed by the testimony of two
individuals to whom petitioners sold leather goods during the
years at issue.
On the basis of our observation of petitioners’ witnesses at
trial, including our observation of their demeanor, we found
petitioners’ witnesses to be credible and earnest. Their
testimony was direct, plausible, and uncontroverted. It was not
evasive, conclusory, or inconsistent. We are satisfied that
their testimony was honest.
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