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On a Schedule C, Profit or Loss From Business, included with
each of petitioners’ joint Federal income returns for 1997
through 2001, petitioners reported income and expenses from
Malone Music as follows:
Gross Total Total
Year Income Reported Expenses Claimed Losses Claimed
1997 $550 $27,898 $27,348
1998 1,777 28,074 26,297
1999 1,917 8,553 6,636
2000 2,559 23,123 20,564
2001 5,758 26,060 20,302
The gross income from Malone Music reported on the Schedules
C for the years in issue is primarily attributable to services
provided by H and R.4 The deductions claimed on the Schedules C
for the years in issue consist almost entirely of amounts paid
for music lessons for the Malone children and the cost of musical
instruments.5
In the notice of deficiency for each year in issue,
respondent disallowed all of the deductions claimed on the
Schedule C and imposed a section 6662(a) accuracy-related
penalty. Other adjustments made in the notice of deficiency are
computational and need not be addressed.
4 A small amount of Malone Music’s income for each year in
issue is attributable to services provided by B.
5 For example, the only deduction claimed on the 1999
Schedule C ($8,553) is for “music instruction” expenses of the
Malone children. In 1998, petitioner spent $11,560 for two
violins. The cost of those violins is claimed as a deduction on
the Schedule C included with petitioners’ 2000 return.
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Last modified: May 25, 2011