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A. Beauty Shop Business Expenses
Respondent contends that petitioner is not entitled to
deduct business expenses of $11,500 in 1989 and $16,000 in 1990
relating to the beauty shop. Respondent argues that petitioner
and Ms. McNamara improperly deducted amounts payable to “Clairol”
as business expenses and deposited these amounts into their
personal joint checking account. Petitioner argues that he is
entitled to deduct these expenses because they were paid to
reimburse the renovation costs of the beauty shop.
We find that the checks made payable to “Clairol” that were
issued by the beauty shop are not deductible business expenses.
Petitioner requested that these checks be made payable to
“Clairol” to disguise the payments as costs of goods used in the
beauty shop. Petitioner admits that these funds were deposited
into his and Ms. McNamara’s personal joint checking account. The
deposits into petitioner’s personal account and the deceptive use
of “Clairol” as the payee establish that these payments were not
ordinary and necessary business expenses but veiled payments to
petitioner. Had these payments been legitimate business
expenditures, petitioner would have had no need to create this
elaborate scheme involving a bogus payee.
B. Beauty Shop Salaries
Respondent argues that petitioner failed to substantiate
wage expenses attributable to the beauty shop of $3,210 in 1989
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