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TGC treated as income all payments that it received from Primex
pursuant to the Primex contract, including payments for the
respective travel expenses of Mr. Horwath and Ms. Smith.
During 1998, Mr. Horwath paid $16,812 in travel expenses in
connection with providing to Primex on TGC’s behalf the consult-
ing services required by the Primex contract. Mr. Horwath was
entitled to a reimbursement by TGC for those travel expenses.
Mr. Horwath chose not to be reimbursed by TGC for the travel
expenses that he paid in 1998.
Petitioners’ Tax Returns
Petitioners filed Form 1040, Individual Income Tax Return
(Form 1040), for each of the taxable years at issue, which Ms.
Horwath prepared. (We shall refer to Forms 1040 that petitioners
filed for taxable years 1997 and 1998 as petitioners’ 1997 return
and petitioners’ 1998 return, respectively.) In petitioners’
1997 return, petitioners claimed for the first time a deprecia-
tion deduction with respect to the computer simulator when in
Schedule C, Profit and Loss from Business (Schedule C), of that
return (Mr. Horwath’s 1997 Schedule C), they claimed such a
deduction of $75,250. In Form 4562, Depreciation and Amortiza-
tion (Form 4562), relating to Mr. Horwath’s 1997 Schedule C,
petitioners claimed a basis of $215,000 in the computer simula-
tor. The $215,000 basis in the computer simulator that petition-
ers claimed in Form 4562 represented their best estimate of the
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