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FINDINGS OF FACT
Some of the facts have been stipulated. We incorporate the
stipulated facts into our findings by this reference. Petitioner
resided in Pasadena, California, when his petition in this case
was filed. Petitioner is a lawyer authorized to practice law in
the State of California who, during the years at issue, was
employed as an associate in a law firm.
1995 and 1996 Tax Liabilities
Petitioner filed Form 1040, U.S. Individual Income Tax
Return, for 1995 and 1996. On each return, petitioner reported
his filing status as married filing separate and claimed three
personal exemptions: One for himself, one for his wife, and one
for his dependent son. Petitioner also claimed Schedule C,
Profit or Loss From Business or Profession (Sole Proprietorship),
business expenses of more than $50,000 on each of his 1995 and
1996 returns.
In December 1997, respondent notified petitioner of changes
to petitioner’s 1995 return as a result of an examination. The
changes included the disallowance of two of three personal
exemptions and all of the Schedule C business expenses claimed on
petitioner’s 1995 return for lack of substantiation.
In January 1998, petitioner sent letters to respondent
requesting audit reconsideration and/or an Appeals conference
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