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four referrals in the subscription agreement. Although
promotional service program C required petitioners to display and
distribute AdaCom brochures and display an AdaCom window decal,
petitioner Bruce Channell testified that he did not remember
whether he displayed an AdaCom window decal and that AdaCom did
not check to see whether he had displayed a window decal or
distributed brochures.
Petitioners paid AdaCom $2,500 and were credited with $7,750
in promotional services for a subscription to the program for the
tax year 2000.
AdaCom issued a Form 1099 to petitioners in the amount of
$7,750 for the 2000 tax year. This amount represented the
alleged bartering income from AdaCom for promotional services and
was reported on petitioners’ Schedule C for the taxable year
2000. This was the only income reported on petitioners’ Schedule
C.
Based on their subscription to the program, petitioners
claimed a $5,250 business expense deduction and a $5,000 section
44 credit on their income tax return for 2000.
Respondent determined a deficiency in petitioners’ Federal
income tax for 2000 in the amount of $1,935. Respondent issued a
notice of deficiency which stated:
We adjusted your Schedule C, Gross Receipts, and Other
Expenses. The adjustments are to decrease income by
monies recorded as received from bartering in the
amount of $7,750.00, to disallow the advertising
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