Carlos H. and Maria C. Gonzalez - Page 5

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               1Consisted of:                                                         
               Communications          $ 4,544                                        
               Dues & subscriptions        335                                        
               Colombia office          15,091                                        
               Contract labor            2,700                                        
               Education                   308                                        
               Total                  $22,978                                         

               For the year 2001, petitioners reported the following income           
          and expenses related to that activity on Schedule C of their                
          income tax return:                                                          

               Income                                             $ 3,000             
               Expenses:                                                              
               Advertising             $ 3,223                                        
               Car & truck expenses     13,721                                        
               Depreciation              1,669                                        
               Legal & professional        649                                        
               Office expenses           1,098                                        
               Travel                    1,336                                        
               Other expenses           125,529                                       
               Total expenses        $47,225                                          
               Loss                                              ($44,225)            
               1Consisted of:                                                         
               Communications          $ 2,897                                        
               Bank charges                130                                        
               Dues & subscriptions        335                                        
               Colombia office          18,708                                        
               Tolls                       386                                        
               Freight                      73                                        
               Contract labor            3,000                                        
               Total                  $25,529                                         

               In the notice of deficiency, respondent disallowed the                 
          Schedule C deductions claimed for both years.  At trial,                    
          petitioners conceded that the $3,000 reported gross income for              
          2001 was not related to the purported activity and was paid to              







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