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disallow the entire amount of Mr. Hopkins’s S Corporation’s
expenditures of $39,557 that Mr. Hopkins’s S Corporation claimed
as a deduction in the 1999 Form 1120S.9 As a result of respon-
dent’s disallowance of various deductions, including the above-
specified deductions, respondent determined that for taxable year
1999 Mr. Hopkins’s S Corporation had ordinary income of
$26,885,10 and not an ordinary loss of $36,066 as claimed in the
1999 Form 1120S.
Respondent issued to petitioners a notice of deficiency
(notice) for their taxable year 1999. In that notice, respon-
dent, inter alia, disallowed $5,035, and allowed $5,144,11 of Mr.
8(...continued)
4 percent of the $87,249 of gross receipts reported in Mr.
Hopkins’s S Corporation’s 1999 Form 1120S.
9Respondent disallowed $557 of Mr. Hopkins’s S Corporation’s
expenditures of $39,557 as nondeductible country club dues and
the balance of such expenditures as nondeductible personal
automobile racing expenditures of Mr. Hopkins. Respondent made
that latter determination because respondent had allowed Mr.
Hopkins’s S Corporation an advertising expense deduction of
$3,490 (i.e., 4 percent of the $87,249 of gross receipts reported
in its 1999 Form 1120S). See supra note 8.
10The parties stipulated that, as a result of respondent’s
disallowance of various deductions, respondent determined that
Mr. Hopkins’s S Corporation had ordinary income of $26,885 for
1999. However, respondent’s disallowance of various deductions
claimed in the 1999 Form 1120S results in Mr. Hopkins’s S Corpo-
ration’s having ordinary income of $26,685. There is no explana-
tion in the record for this discrepancy. We shall use the amount
of ordinary income stipulated by the parties.
11The amount of Mr. Hopkins’s unidentified expenditures of
$10,179 that respondent determined in the notice to allow (i.e.,
(continued...)
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