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The Court accordingly finds that petitioners failed to
substantiate any of the expenses in connection with either the
Keepsake or Amway activity. The deductions claimed with respect
to these activities, for both years, are disallowed to the extent
they exceed the income reported for the activities on
petitioners’ Schedules C.
Although the record is not entirely clear as to the extent
petitioners operated their activities and generated expenses, in
the notice of deficiency, respondent did not determine that the
reported gross receipts for the 2 years were false or fictitious.
Respondent only determined that the expenses claimed in excess of
the gross income were false, fictitious, and fraudulent. In
fact, respondent allowed deductions for business expenses for
Keepsake and Amway to the extent of the reported gross receipts,
$18,553.91 and $7,285.75 for 1994 and 1995, respectively. As
respondent does not challenge whether petitioners received income
from either activity, it follows that petitioners generated some
expenses in the operation of both Keepsake and Amway. Therefore,
respondent’s determination is sustained and petitioners are not
entitled to any of the Schedule C losses for either Keepsake or
Amway for tax years 1994 and 1995.
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