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receipts of $45,153, expenses of $61,219, and a net loss of
$16,066.2 In the notice of deficiency, respondent disallowed the
entire loss.
For purposes of this case, respondent does not challenge the
accuracy of the claimed expenses or the amount of income
reported. Respondent’s sole basis for disallowing the claimed
expenses is that, as a matter of law, petitioners are not
entitled to deductions for such expenses. Petitioners contend
that the expenses were incurred in connection with their trade or
business, and, therefore, such expenses are deductible.
Petitioners also contend that, while their return was under
audit, they received a refund of $1.30, and, because of that
refund, petitioners believed that their claimed expenses had been
allowed.
The issuance of a refund does not preclude Commissioner from
issuing a notice of deficiency. Gordon v. United States, 757
F.2d 1157, 1160 (11th Cir. 1985); Beer v. Commissioner, 733 F.2d
435, 437 (6th Cir. 1984), affg. T.C. Memo. 1982-735; Warner v.
Commissioner 526 F.2d 1, 2 (9th Cir. 1975), affg. T.C. Memo.
1974-243. The taxpayers in Gordon v. United States, supra, and
2The Schedule C expenses consisted of:
Meals & entertainment (net) $12,775
Utilities 744
Other expenses, identified only as dues of $250
and per diem of $47,450 47,700
The per diem was not described by petitioners at trial.
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