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Changes, and Form 886-A, Explanation of Adjustments. The Form
4549A reveals that the deficiency arises from respondent’s
disallowance of petitioner’s claimed business deductions for 2001
and 2002, associated reductions in itemized deductions and
exemptions for 2001 and 2002, and respondent’s imposition of
section 6662(a) penalties for 2001 and 2002.3
The only meaningful explanation for respondent’s
disallowance of petitioner’s claimed business deductions appears
on the Form 886-A and reads as follows:
We disallowed the Schedule C expense amounts shown on
your returns because we did not receive an answer to
our request for supporting information. To be allowed
a deduction, expense, exemption, credit, or other tax
benefit, you must establish that you have met all
requirements of the law. Since you did not do so, we
have adjusted your deductions shown below to the
amounts verified. Accordingly, we have increased your
income $55,348 for tax year 2001 and $48,001 for the
tax year 2002.
Discussion
I. Burden of Proof
At trial and on the brief, respondent argued that petitioner
was precluded from claiming the Schedule C deductions on his 2001
and 2002 income tax returns because the deductions related to
start-up expenditures within the meaning of section 195, and
3 Because respondent determined that petitioner was not
entitled to the deductions on his Schedules C for 2001 and 2002,
respondent also determined that petitioner’s 2001 and 2002 income
included the interest reported on the Schedules C of $161 and $43
for 2001 and 2002, respectively.
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Last modified: November 10, 2007