Michael and Penny Rhodes - Page 15

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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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