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trade or business expenses in 1994.1 The notice of deficiency
states:
It is determined that the amount of $89,069.00 as a loss
from an information services business for the taxable year
ended December 31, 1994 is not allowed because you did not
establish that such an activity constitutes a bona fide
business entered into for profit. Further, it has not been
established that the claimed expenses were incurred or, if
incurred, paid by you during the taxable year for ordinary
and necessary business purposes or that any claimed amount
qualifies as an allowable deduction under the provisions of
the Internal Revenue Code. Further, it has been determined
that the claimed Schedule C expenses are start-up
expenditures and not deductible in the taxable year ended
December 31, 1994 under section 162 of the Internal Revenue
Code. Further, it has been determined that the claimed
Schedule C expenses were not your expenses but those of the
corporations, Search 2000 and Navis Communications.
Accordingly, with the disallowance of all of your Schedule C
expenses and home office expenses taxable income is
increased $89,069.00.
Because the Schedule C expenses were disallowed, respondent also
determined that petitioners are not entitled to the NOL carryback
from 1994 to 1991. The entire amount of the 1991 deficiency of
$26,783 results from the disallowance of the NOL carryback and
related computational adjustments. With respect to 1994,
respondent also determined that income of $866 received by
petitioner wife from Personalized Workout of La Jolla, Inc., is
subject to self-employment income tax. This adjustment gives
rise to the entire amount of the 1994 deficiency of $122.
Despite stating a general objection to the 1994 deficiency in
1In lieu of the home office expense deduction of $22,169,
respondent allowed petitioners additional itemized deductions for
taxes and mortgage interest totaling the same amount.
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