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the unreported income adjustment of $117,819 by subtracting
petitioner’s reported Schedule C net profit of $7,437 for 1988
from the “Employment Income” of $125,256 shown on the 1989
financial statement. For 1989, respondent determined the
unreported income adjustment of $116,483 by subtracting
petitioner’s reported Schedule C net profit of $8,773 from
$125,256. For 1990, respondent determined the unreported income
adjustment of $154,069 by adding petitioner’s reported Schedule C
net loss of $28,813 to $125,256.
B. Disallowance of Petitioner’s Schedule C Deductions
For 1988, respondent disallowed $59,038 of petitioner’s
total Schedule C deductions of $121,459, but the notice of
deficiency does not indicate which Schedule C deductions were
disallowed. For 1987, 1989, and 1990, respondent disallowed all
of petitioner’s Schedule C deductions. The sole basis for
respondent’s disallowance of petitioner’s Schedule C expenses for
each of the years at issue set forth in the notices of deficiency
was: “Since you did not establish that the business expense
shown on your tax return was paid or incurred during the taxable
year and that the expense was ordinary and necessary to your
business, we have disallowed the amount shown.”
III. Description of Petitioner’s Business Records
Petitioner, a cash basis taxpayer, did not maintain formal
journals and ledgers with respect to her law practice or record
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Last modified: May 25, 2011