-7-
For other categories of expenses, including insurance,
interest, depreciation, legal and professional, car and truck,
travel, and meals and entertainment expenses, petitioner offered
no testimony and submitted no documentation.
B. 1996 Rental Income
Petitioner did not present any documentation or offer any
testimony regarding the $3,424 of additional rental income
respondent determined petitioner earned in 1996.
II. Audit and Deficiency Notice
Respondent began examining petitioners’ returns for the
years at issue in October 1997. Respondent repeatedly asked
petitioners to submit documentation to support each of the items
they claimed on the returns. Petitioners failed to submit
documentation that would substantiate many of their expenses.
Respondent issued a deficiency notice in which he made
adjustments to the Schedule C expenses petitioners claimed,
increased petitioners’ income by the amounts of rental payments
they failed to include, and determined that petitioners are
liable for the accuracy-related penalty. Respondent disallowed
the Schedule C expenses on the grounds that they were not
ordinary and necessary business expenses, lacked sufficient
substantiation, or were personal in nature.
Petitioners timely filed a petition.
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