Debra D. McNair - Page 7

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          purposes but never was filed with the Internal Revenue Service.             
          On her draft amended 1999 Schedule C, petitioner stated that she            
          earned $400 of income in addition to the amount reported on her             
          return as filed, and she claimed $5,436 in expenses, including              
          $2,225 for mileage, $500 for tax preparation fees, $404 for                 
          postage, $1,845 in supplies, and $462 for a cellular telephone.             
          This draft was petitioner’s position at trial.                              
               By notice of deficiency, respondent disallowed $8,367 of               
          petitioner’s claimed Schedule C expenses and determined an                  
          additional $400 of unreported income.  The $833 in expenses                 
          allowed by respondent included $293 for transportation expenses             
          (mileage from first job to second job), $75 for postage, $390 for           
          supplies (including depreciation on a computer), and $75 for a              
          cellular telephone.  At trial the parties stipulated orally that            
          the entire cost of the computer purchased in February 1999 was              
          $2,349 and that this amount properly was deductible as                      
          petitioner’s business expense in 1999 pursuant to section 179.              
          Petitioner conceded the previously claimed deductions for                   
          “supplies” other than the amount stipulated as the cost of the              
          computer and deducted pursuant to section 179.                              
               On her 2000 Schedule C, petitioner reported a net loss of              
          $4,400.  Petitioner reported gross income of $900 less deductions           
          of $5,300.  The deductions consisted of $3,600 for rented or                
          leased business property and $1,700 in repairs and maintenance.             

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