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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