Lampanh and Sykhane Pchan - Page 3

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               Respondent determined the following deficiencies in                    
          petitioners’ Federal income taxes and penalties for 2002 and                
          2003:                                                                       
                                                    Penalty                          
                    Year      Deficiency            Sec. 6662                         
                    2002      $6,423              $1,284.60                           
                    2003      6,702               1,340.40                            
               The issues for decision are whether petitioners:  (1) Are              
          entitled to deductions they claimed on Schedules C, Profit or               
          Loss From Business, for 2002 and 2003, in excess of those allowed           
          by respondent, and (2) are liable for accuracy-related penalties            
          under section 6662(a).                                                      
                                     Background                                       
               The stipulation of facts and the exhibits received into                
          evidence are incorporated herein by reference.  At the time the             
          petition in this case was filed, petitioners resided in Houston,            
          Texas.                                                                      
               Lampanh Pchan (petitioner) was employed as a machinist at              
          all relevant times.  For 2002 and 2003, petitioners jointly filed           
          Forms 1040, U.S. Individual Income Tax Return, which were                   
          prepared by a tax return preparer.  In addition to his regular              
          employment, petitioner operated his own business.  On the 2002              
          Schedule C for that business, petitioner reported both gross                
          receipts and gross income of $14,175, car and truck expenses of             
          $17,739, and other expenses of $10,101.  On the 2003 Schedule C,            




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