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in Papeete for 8 nights and returned to Los Angeles on October 8,
1999. During those travels, Michelsen attended a gift trade fair
in Sydney where she found a single product that she ended up
selling at the Nature’s Touch shops. She also in or around
Brisbane purchased some other items which she displayed for sale
in the Nature’s Touch shops. Petitioners incurred $12,847.26 of
expenses for the trip to Australia and considered $4,129 of that
amount to be a business-related travel expense (as discussed
further below). Petitioners did not consider or report any of
their expenses related to Tahiti as business related.
D. 1997, 1998, and 1999 Schedules C
1. 1997
For 1997 Federal income tax purposes, Michelsen reported the
income and expenses of the Nature’s Touch shops on a 1997
Schedule C, Profit or Loss From Business, filed as part of their
return. The schedule reported on the basis of an accrual method
of accounting that the shops, for 1997, had gross receipts of
$501,574, costs of goods sold of $289,647, and total expenses of
$239,745, resulting in a net loss of $27,818.7 The schedule was
accompanied by a 1997 Form 8829, Expenses For Business Use of
Your Home, reporting home operating expenses of $2,367 and home
7 According to the 1997 Schedule C, the inventory of the
shops was $98,107 at the beginning of the year and $289,647 at
the end of the year.
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