Dale H. Sundby and Edith Littlefield Sundby - Page 3

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               Respondent determined deficiencies in petitioners’ Federal             
          income taxes of $26,783 and $122 for the taxable years 1991 and             
          1994.  The issue for decision is whether petitioners are entitled           
          to certain deductions they claimed on Schedule C, Profit or Loss            
          From Business, in 1994.  Petitioners resided in San Diego,                  
          California, on the date the petition was filed in this case.                
               On April 6, 1993, petitioner husband (petitioner)                      
          incorporated an entity in the State of California with the name             
          Access Anytime Anywhere, Inc.  On May 12, 1993, this                        
          corporation’s name was changed to Navis Communications (Navis).             
          On December 19, 1993, petitioner signed a document as director of           
          Navis that, inter alia, named petitioner as the chairman,                   
          president, chief executive officer (CEO), secretary, and chief              
          financial officer of Navis.  By letter dated May 2, 1994, Navis             
          was notified by the Internal Revenue Service that its election to           
          be treated as an S corporation had been accepted “effective                 
          beginning Jan. 1, 1994, subject to verification if we examine               
          your return.”  Navis’s status was suspended on December 16, 1997,           
          and then again on June 1, 2001.                                             
               On November 9, 1994, petitioner incorporated another entity            
          in the State of California with the name Search2000.  The                   
          corporation’s name was changed to Power Agent, Inc., on September           
          19, 1995, and its status was suspended on January 2, 2001.  A               
          Federal income tax return was filed for Power Agent in September            

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