Christine Kenton & Greg Braden - Page 4

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          the Company had paid petitioner in 2001 the above $148,744 as               
          nonemployee compensation.                                                   
               On April 3, 2002, petitioners signed and filed with                    
          respondent their 2001 joint Federal income tax return on which              
          petitioners reported no income and no legal fees with respect to            
          petitioner’s employment discrimination lawsuit and the                      
          arbitration award.                                                          
               On October 6, 2003, respondent mailed to petitioners a 30-             
          day letter proposing to include in petitioners’ income for 2001             
          the $148,744 reflected by the payments made by the Company in               
          2001 on the arbitration award.  Also, in the 30-day letter,                 
          respondent, apparently for lack of substantiation, proposed to              
          deny petitioners any deduction for legal fees relating to the               
          arbitration award.                                                          
               On February 2, 2004, respondent mailed to petitioners a                
          notice of deficiency in which respondent treated as petitioner’s            
          “other income,” not as Schedule C income, the $148,744 the                  
          Company paid in 2001 on the arbitration award and in which                  
          respondent, for apparent lack of substantiation, did not allow              
          any deduction for legal fees relating to the arbitration award.             
               On February 3, 2004, petitioners signed and filed with                 
          respondent an amended joint Federal income tax return for 2001 on           
          which petitioners reported as income on a Schedule C the $148,744           








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