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their reported sales to $92,892 and increasing their aggregate
expenses to $118,900. (Although Spiller entered $118,900 as the
total expenses on line 28 of the amended Schedule C, the actual
sum of expenses listed equals $119,042). Remarkably--since
Washington Car’s business was buying cars to repair and resell--
neither the original nor the amended Schedule C reported any cost
of goods sold. More remarkably, Spiller submitted a second
amended 2000 return that reduced Schedule C sales to $92,500 and
expenses to $118,508. This time, Spiller inexplicably kept the
prior net loss figure and claim of refund, and continued to
report no cost of goods sold.
This was not a good tax preparation strategy. The IRS
audited the returns and rejected both the original and amended
Forms 1040. The resulting notice of deficiency included a
penalty under section 66621 for negligence. Before trial, Cox
and the Commissioner stipulated that his gross receipts were
actually about $258,000 and stipulated as well that he was
entitled to deductions and allowances of about $130,000. Left
for trial were two issues: the deduction of what Cox claimed
were cash payments to Concord, and the penalty for negligence.
The trial was in Houston, where the Coxes lived when they filed
their petition.
1 Unless otherwise stated, section references are to the
Internal Revenue Code and regulations as amended and in effect
for 2000.
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Last modified: May 25, 2011