Alan D. Lenzen and Dianne Lenzen - Page 5

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          RAF’s accountant showing loans to RAF from Mr. Lenzen and Mr.               
          Schoenecker and RAF’s interest expense on the loans.                        
               On February 12, 2003, respondent issued RAF a notice of                
          deficiency disallowing $100,793 of the sales expense deduction.             
          Specifically, respondent disallowed charges of $62,392 on the               
          corporate card, charges of $1,807 on an American Express                    
          Corporate Optima Platinum card (Optima card), and a series of               
          miscellaneous expenses totaling $36,594.43 (miscellaneous                   
          expenses).  Of the disallowed amounts charged to the corporate              
          card, $27,202.50 was charged by Mr. Lenzen, $28,158.09 was                  
          charged by Mrs. Lenzen, $5,439.01 was charged by Steven Lenzen,             
          and $1,593.40 was charged by David Lenzen.                                  
               Respondent has conceded that all the Optima card charges,              
          miscellaneous expenses, and corporate card charges made by Steven           
          Lenzen and David Lenzen were properly deducted and that $7,687 of           
          Mr. Lenzen’s corporate card charges were properly deducted.                 
          Respondent maintains that all of Mrs. Lenzen’s corporate card               
          charges, $28,158, and the remainder of Mr. Lenzen’s corporate               
          card charges, $19,516, were for personal expenses of the Lenzens.           
          B.   The Lenzens’ 1999 Return                                               
               The Lenzens filed a joint Form 1040, U.S. Individual Income            
          Tax Return, for 1999.  On their 1999 return, the Lenzens reported           
          interest income of $49,598 from RAF.  The Lenzens’ 1999 return              
          also indicates that they received gambling income of $17,204 and            






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