Terri L and Austin W. Hartsock - Page 6

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               Petitioners timely filed Form 1040, U.S. Individual Income             
          Tax Return, for each of their taxable years 1999 and 2000 (peti-            
          tioners’ 1999 return and petitioners’ 2000 return, respectively).           
               In petitioners’ 1999 return, petitioners reported the                  
          following income:                                                           
                             Income                     Amount                        
                Wages, salaries, tips, etc.            1$92,461                       
                Taxable interest                       2,333                          
                Ordinary dividends                     701                            
                Capital gain or (loss)                 76,940                         
                Rental real estate, royalties,         9,463                          
                partnerships, S corporations,                                         
                trusts, etc.                                                          
                Other income                           2230,825                       
                Total income                           $412,723                       
               1Of the $92,461 of total wages reported in petitioners’ 1999           
          return, The Frederick Painting Company paid $74,911.40 to Mr.               
          Hartsock and $17,550 to Ms. Hartsock.                                       
               2The parties agree that the $230,825 of “Other income”                 
          reported in petitioners’ 1999 return consisted solely of peti-              
          tioners’ gambling winnings.                                                 
               In petitioners’ 1999 return, petitioners claimed itemized              
          deductions totaling $245,250.  Included in those itemized deduc-            
          tions was a deduction for $230,825 of claimed gambling losses.              
               In petitioners’ 2000 return, petitioners reported the                  
          following income:                                                           












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