Marcelo E. Ferrada and Gloria D. Ferrada - Page 5

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               Respondent issued a statutory notice of deficiency to                  
          petitioners in which he disallowed certain deductions claimed on            
          the Schedule C for lack of substantiation.  An automatic                    
          computational adjustment was also made to petitioners' claimed              
          Schedule A medical expense deduction due solely to the increase             
          in adjusted gross income and a corresponding increase in the                
          threshold for the medical expense deduction.                                
               Petitioners' Schedule C Expenses                                       
               a.   Advertising                                                       
               Mr. Ferrada invented a flashlight holder.  On their Schedule           
          C, petitioners claimed advertising expenses of $1,500 pertaining            
          to the flashlight holder.  Petitioners did not have any receipts            
          for the advertising expenses.                                               
               b.   Car and Truck Expenses                                            
               Petitioners deducted car and truck expenses of $6,037.                 
          This amount comprises $4,685 petitioners paid to purchase a 1987            
          Saab automobile and $1,352 they paid for auto repair and                    
          maintenance for which they provided receipts.  Mr. Ferrada                  
          purchased the Saab because Mrs. Ferrada needed the use of their             
          Chevy Lumina.                                                               
               c. Insurance                                                           
               Petitioners deducted insurance expenses of $1,270.                     
          Petitioners' receipts show that $959 of this amount was paid for            
          insurance on the Saab petitioners purchased as well as the Chevy            






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Last modified: May 25, 2011