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that were used for both his home and office. He said Edgar had
misclassified personal expenses as business expenses; however,
petitioners improperly deducted $4,476 of personal expenses as
business expenses in 1999 after Edgar was fired.
Petitioner incorrectly told Peredo that he did not have any
books or billing records because Edgar had them.
Petitioner incorrectly told Peredo that he did not engage in
bartering. Petitioner bartered his services in exchange for
services provided by some of his clients. For example, Thomas
owed petitioner $2,300 for petitioner’s representation of Thomas
in a custody battle with his ex-wife over visitation rights of
their son. Thomas subtracted that amount from the amount
petitioner owed him for the kitchen remodeling job.
F. Respondent’s Bank Deposits Analysis
The revenue agent performed a bank deposits analysis and
characterized each of petitioner’s deposits in his business
account as taxable or nontaxable.
Petitioner deposited $572,284 in his law firm's business
checking account in 1998. Included in those deposits were
$55,971 from nontaxable sources, as follows: (a) $40,873 allowed
by the revenue agent in preparing the notice of deficiency; (b)
$10,098 in checks from Edgar traceable to the funds transferred
to her from the $135,422 deposited in O’Leary’s account; and (c)
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