- 2 - Respondent determined a deficiency in petitioners’ Federal income tax of $2,182 for 1997. After concessions by respondent, the issues1 for decision are: (1) Whether petitioners are entitled to a business expense deduction under section 162(a) for expenditures made on behalf of Intercontinental Trading Group, Inc.; (2) in the alternative, whether petitioners are entitled to a loss deduction under section 165 or bad debt deduction under section 166 relating to those expenditures; and (3) whether 1 Petitioners claimed a deduction of $30,067.59 on a Schedule C, Profit or Loss From Business, attached to their jointly filed Form 1040, U.S. Individual Income Tax Return. The Schedule C reflected a business name of “International Trading Co.”. Petitioners identified the amount claimed on line 27 of Schedule C as “Other expenses”--“Postal Service and Bad Debt”. On page 2 of the Schedule C, Part V, “Other Expenses” petitioners reflected an amount of $30,000. The item was further identified as “Bankruptcy of David Sparks ($30,000 real estate note)”. No amount is included on Schedule C, page 2, line 48 as a total. The instruction on the Schedule C, page 2, line 48 requires a taxpayer to enter the total claimed from line 48 on page 1, line 27. From the face of the 1997 return, it is unclear whether petitioners intended to identify the $30,000 reflected on page 2 as part of the total of $30,067.59 claimed on line 27 or whether petitioners failed to carry forward the $30,000 to page 1 of the Schedule C. The notice of deficiency (explanation of adjustments) disallowed the $30,067 (apparently rounded down by respondent) as a bad debt deduction. The $30,000 identified at part V of the Schedule C is not included as an adjustment in the statutory notice. At trial, petitioners asserted that they are entitled to a $30,000 bad debt deduction, separate from, and in addition to, the $30,067.59 deduction claimed on line 27 of the Schedule C. The parties agree that petitioners are entitled to a Schedule C deduction for legal and professional fees of $4,229, for the tax year in issue.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011