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1. Legal and Professional Expenses
Respondent argues that petitioner failed to substantiate his
legal and professional expenses because the receipts submitted by
petitioner are untrustworthy.
Petitioner produced four sales receipts from BMS, the
company that employed petitioner’s wife and that was owned by his
father-in-law, to substantiate his legal and professional expense
deductions.
Although he had a checking account, each BMS receipt
indicates a $450 cash payment.
Petitioner testified that the charges on the receipts
represented costs incurred while Chester Muhammad helped him set
up a limited liability company for his rental real estate
activity. The receipts indicate that they were for services
including monthly accounting, bookkeeping, and payroll.
Petitioner testified that he hired an employee, whom he paid
sometimes with both a check and cash and sometimes just with
cash. Petitioner issued neither a Form W-2, Wage and Tax
Statement, nor a Form 1099 and claimed no deduction for the
employee’s wages. Petitioner testified that he did not deduct
his employee’s wages because he did not want the employee to have
to pay taxes on them. Petitioner’s testimony indicates that
although the receipts he received from BMS represent charges for
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Last modified: May 25, 2011