Debra D. McNair - Page 6

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               By notice of deficiency, respondent allowed petitioner a               
          dependency exemption deduction for her mother and permitted                 
          filing as head of household, but respondent disallowed the                  
          dependency exemption deductions and related child tax credits for           
          the three children.                                                         
          B.  Schedule C Deductions                                                   
               Petitioner attached a Schedule C to each of her returns for            
          1999 and 2000 to reflect the results of the secretarial and                 
          administrative services business she conducted under the name of            
          Debra’s Secretarial Services.                                               
               Most of the receipts petitioner reported on Schedule C for             
          1999 were for administrative and secretarial tasks for the pastor           
          of a church.  On her 1999 Schedule C, petitioner reported a net             
          loss of $6,693 for Debra’s Secretarial Services, based on gross             
          income of $2,507 less deductions of $9,200.  The deductions                 
          consisted of the following expenses:  $205 for advertising,                 
          $4,752 for rented or leased vehicle expenses, $2,390 for repairs            
          and maintenance, and $1,845 in supplies.  During the examination            
          of her 1999 return, petitioner conceded that her 1999 Schedule C            
          contained many errors, such as the deduction for leased vehicle             
          expenses although petitioner admitted that she never leased a car           
          in 1999.  As stated previously, with assistance from her                    
          authorized representative, Clark, petitioner prepared a draft               
          amended 1999 return that was used for discussion and settlement             

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