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replacement cost of that simulator. In Schedule C of petition-
ers’ 1998 return (Mr. Horwath’s 1998 Schedule C), petitioners
claimed a depreciation deduction of $57,100 with respect to the
computer simulator and a deduction of $16,812 for the travel
expenses that Mr. Horwath paid in 1998.
Notice of Deficiency
On August 1, 2002, respondent issued to petitioners a notice
of deficiency (notice) with respect to their taxable years 1997
and 1998. In that notice, respondent determined, inter alia,
that petitioners are not entitled to the depreciation deductions
of $75,250 and $57,100 claimed with respect to the computer
simulator in petitioners’ 1997 return and petitioners’ 1998
return, respectively. Respondent also determined in the notice,
inter alia, that petitioners are not entitled to $14,686 of the
$16,812 deduction that petitioners claimed for the travel
expenses that Mr. Horwath paid in 1998.2 Respondent further
determined in the notice that petitioners are liable for each of
the taxable years at issue for the accuracy-related penalty under
2Petitioners claimed a deduction of $16,812 for travel
expenses in petitioners’ 1998 return. Respondent allowed $2,126
of that amount. The record does not disclose why respondent
allowed $2,126 of the claimed $16,812 travel expenses. The
parties stipulated that the entire amount of travel expenses
(i.e., $16,812) was paid by Mr. Horwath in connection with
providing to Primex on TGC’s behalf the consulting services
required by the Primex contract. (We shall refer to the $14,686
in travel expense that respondent disallowed in the notice as Mr.
Horwath’s 1998 travel expenses.)
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Last modified: May 25, 2011