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carrying on a trade or business. Sec. 162(a); Deputy v. duPont,
308 U.S. 488, 495 (1940).
Petitioners deducted $24,564.98 and $10,973.16 for supplies
for Keepsake in 1994 and 1995, respectively. In the examination
of the 1994 return, Ms. Rhodes presented numerous receipts to
substantiate the claimed deductions. Those receipts totaled
almost $31,000, $6,000 more than what was claimed on the 1994 tax
return. For 1995, Ms. Rhodes’s receipts from the purported
suppliers, Frank’s Nursery and Crafts, Inc. (Frank’s), alone
totaled $2,557.14 more than the amount claimed for supplies on
that year’s return.
When respondent’s examining agent questioned Ms. Rhodes
about her receipts, she claimed to have purchased the bulk of her
supplies from Frank’s, a significant amount from a craft store
named the Silk Shop, and the remainder from various stores such
as Michael’s or Wal-mart.
With respect to purchases at Frank’s, Ms. Rhodes submitted
to the examiner and entered into evidence at trial purchase
orders from 1994 and 1995 totaling $24,076 and $13,530.30,
respectively. The purchase orders were generic and bore Frank’s
name and address typed in the upper left-hand corner. The
transactions were handwritten and reflected that Ms. Rhodes paid
cash in amounts between $2,500 and $9,000 to an individual
referred to as “C.O.” for flowers, greenery, and other craft
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