Milton Craig Werner and Barbara K. Werner - Page 3

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               Respondent determined a deficiency in petitioners' 1998                
          Federal income tax of $17,280.84 and an addition to tax under               
          section 6651(a) of $4,370.11 for failure to file timely a Federal           
          income tax return for 1998.  Petitioners concede as correct                 
          respondent's adjustments for:  (a) Taxes of $7,200 deducted on              
          Schedule A, Itemized Deductions; (b) charitable contributions of            
          $9,400 deducted on Schedule A; and (c) the addition to tax under            
          section 6651(a) for failure to file timely.  Petitioners also               
          concede that they are entitled to only two dependency exemptions.           
          Respondent concedes that there will be no adjustment for:                   
          (1)  Capital gain income in the amount of $4,283; or (2)                    
          miscellaneous expenses of $86 on Schedule A.                                
               The parties agree that the only issue remaining for decision           
          by the Court is whether petitioners are entitled to deduct on               
          Schedule A casualty and theft losses totaling $37,222.                      
               Some of the facts have been stipulated and are so found.               
          The stipulation of facts and exhibits received in evidence are              
          incorporated herein by reference.  At the time the petition was             
          filed, petitioners resided in Berkeley, California.                         
               Petitioner Milton Werner has been a teacher most of his                
          career and is now a high school principal.  Prior to the year at            
          issue, he accepted a new job "across the bay" in Palo Alto,                 
          Callifornia.  He and his family sold their home, put their                  

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