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also added a 20-percent penalty under section 6662(a)2 for
negligence or disregard of the rules and regulations or,
alternatively, for substantially understating the amount of
income tax due.
The Chongs were California residents when they petitioned
this Court, and there was a short trial in San Francisco.
OPINION
I. Partnership Loss
In early 1999, Lok Chong sent his brother a profit-and-loss
statement for Gourmet Down Under. Lok didn’t send a Schedule K-
1, nor did he provide any records to verify the business purpose
of the many expenses shown on the statement. This statement
showed a total partnership loss of over $120,000 for the year,
about $40,000 of which was attributed to Yung. Yung claimed his
loss on his Schedule C as an “other expense,” but has since
conceded that it should have been reported as a partnership loss
on Schedule E.
There are four questions which must be answered before we
can determine whether Yung was entitled to a partnership loss:
(1) did a partnership exist; (2) if there was a partnership, what
was Yung’s distributive share; (3) what was the partnership’s
2 All section references are to the Internal Revenue Code in
effect for 1998. Rule references are to the Tax Court Rules of
Practice and Procedure.
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