Carl Albert and Lorraine Rouse - Page 3

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               Respondent determined a deficiency in petitioners’ Federal             
          income tax of $8,372 for the taxable year 1999.  In his answer,             
          respondent seeks an increased deficiency of $8,904.                         
               The issue for decision is whether petitioners are entitled             
          to deduct certain expenses related to research activity by                  
          petitioner Carl Albert Rouse (petitioner).                                  
               Some of the facts have been stipulated and are so found.               
          The stipulation of facts and the attached exhibits are                      
          incorporated herein by this reference.  Petitioners resided in              
          Del Mar, California, on the date the petition was filed in this             
          case.                                                                       
               During the year in issue, petitioner was involved in physics           
          research activities based out of his residence.  In conducting              
          this research, petitioner used computer resources located at the            
          University of California, San Diego.  Petitioner, who had left              
          his salaried position in order to conduct research at home, has             
          published many articles in his research field.  Petitioner did              
          not receive any income during the year in issue related to his              
          research activity.                                                          
               During the year in issue, petitioner was the sole                      
          shareholder and president of a corporation known as Rouse                   
          Research Incorporated (RRI).  RRI was incorporated in California            
          on November 25, 1992, as a nonprofit corporation.                           








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