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reveals that, for 1988 and 1989, petitioner has substantiated
Schedule C expenses in amounts that are less than the amounts
claimed on her tax return for each year.
The chart also illustrates what should be obvious by now--
respondent’s determination disallowing her Schedule C expenses
for the years at issue was arbitrary and unreasonable. We cannot
explain how the audit process malfunctioned so badly, but it is
readily apparent that the malfunction occurred. The disallowance
of petitioner’s business expenses after petitioner had produced
auditable business records for considered review by the revenue
agent and others has resulted in significant expenditures of time
on the part of petitioner, respondent’s counsel, and this Court
to conduct what was, in effect, an audit. This case has amply
demonstrated that the litigation process is not well suited for
the exchange of information that should occur in a properly
conducted audit.
D. Net Operating Losses
Unlike the record made by petitioner with respect to her
Schedule C income and deductions, the record made by petitioner
with respect to her NOL carryforward deductions does not
establish that respondent’s determinations disallowing
petitioner’s NOL carryforward deductions were erroneous.
Although petitioner alluded to the fact that respondent did not
examine the NOLs during his examination of the years at issue,
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