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Proprietorship), reporting the income, expenses, and profit or
loss from petitioner’s law practice. Petitioner’s Schedules C
listed gross income, deductions, and net profit (loss) in the
following amounts:
Year Gross income Deductions Net profit (loss)
1987 $75,097 $76,198 $(1,101)
1988 128,896 121,459 7,437
1989 124,463 115,690 8,773
1990 95,730 124,543 (28,813)
II. Respondent’s Adjustments to Petitioner’s Schedule C Income
and Deductions in the Notices of Deficiency
A. Adjustments to Income
Respondent increased petitioner’s Schedule C gross income4
for the years in issue in the following amounts:
Year Adjustment
1987 $77,811
1988 117,819
1989 116,483
1990 154,069
Respondent based the adjustments to petitioner’s Schedule C gross
income on two personal financial statements that petitioner
submitted to American National Bank (ANB) in St. Paul (the
financial statements). Petitioner submitted the first financial
statement, dated December 22, 1987 (the 1987 financial
statement), in connection with her purchase of a home and the
4Petitioner’s gross income equaled her gross receipts in
each of the years at issue because she was a cash basis taxpayer
and had no cost of goods sold during those years.
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