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On their 2000 tax return, petitioners deducted $16,500
(which they never paid) for legal expenses twice: As a
Schedule C legal or professional expense; and as a miscellaneous
itemized deduction for attorney’s fees.
Petitioners deducted loan repayments of $27,000 to Davoli
and $27,000 to Pekas in 2000 as legal and professional expenses
on the Schedule C for petitioner’s consulting activity.
Petitioners deducted the $2,535 cost of a computer on their
2000 income tax return twice: As a depreciation expense; and as
an office expense.
D. Respondent’s Examination and Determination
1. Examination of Petitioners’ 1999 Tax Return
On July 13, 2001, respondent’s revenue agent Joan
Hughs (Hughs) sent a letter to petitioners in which she invited
them to a conference as part of the audit of their 1999 income
tax return and requested copies of all Forms W-2 they had
received, records of the Schedule C gross receipts, a brief
history of the Schedule C business, statements from their
employers of their reimbursement policies, records of all of
their employee business expenses, legal and professional
expenses, office expenses, supplies expenses, other expenses,
repair receipts, appointment books, and records of travel, meal,
and entertainment expenses.
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Last modified: May 25, 2011