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journalist and writer for a major telecommunications company.4
He retired from that position in 1997. Between 1997 and 2005,
Mr. Deward conducted research for a book that he plans to write
on World War I (WWI). For 27 years, Mr. Deward has concentrated
on military tactics, model soldiers, and books relating to WWI.
He has also built up his own library on these subjects. In 2001,
petitioners traveled to Europe for the purpose of conducting
research for the proposed WWI book. At the time of respondent’s
examination of petitioners’ 2001 return in 2005, Mr. Deward had
not yet begun the actual writing of the book on WWI. However, he
was still conducting research.
Petitioners timely filed their 2001 joint Federal income tax
return, including two Schedules C. The first Schedule C relates
to Mr. Deward and lists his principal business as “Author”. The
second Schedule C relates to petitioner Sylvia Deward and lists
her principal business as “Interior Design”.
Respondent issued a timely notice of deficiency to
petitioners for their 2001 tax year. Respondent disallowed all
of the $15,892 of “other expenses” claimed on Mr. Deward’s
Schedule C. Those expenses consisted of $1,765 of amortization
and $14,127 for research and development. The research and
development deduction on Mr. Deward’s 2001 Schedule C consisted
4 The company has changed its name from Pacific Bell to
Pacific Telesis and is currently called SBC.
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Last modified: November 10, 2007