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1997 1998 1999
Gross Income $506,503 $43,598 $18,150
Expenses:
Car and truck 6,838 7,228 1,041
Depreciation 12,523 10,392 8,387
Travel 15,562 9,728 1,357
Meals and
entertainment 2,298 2,319 --
Other 545,288 133,105 35,807
Loss (76,006) (119,174) (28,442)
For each year, the “Other expenses” shown on the Schedule C
incorporated an item labeled “FEES REMITTED TO NYU MEDICAL CENTER
PER LETTER” in an amount equal to most or all of the Schedule C
gross income reported for that year. The remaining “Other
expenses” included figures for expenditures such as accounting,
professional dues, telephone and communications, legal, postage,
garage and parking, gifts, Amex dues, publications, computer and
office, music, internet, local travel, CPE, and research.
By a letter dated March 24, 1999, Revenue Agent Melinda
O’Connell (Ms. O’Connell) of the Internal Revenue Service
informed petitioner that his 1997 tax return had been selected
for examination. A similar letter dated February 23, 2001, under
the signature of Area 2 Manager Michael Donovan, was subsequently
issued informing petitioner that his 1998 and 1999 income tax
returns had been selected for examination. Although a detailed
chronology of these examinations is unnecessary for resolving the
issues in dispute, some general observations are warranted. The
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