James G. LeBloch and Cathy Michelsen LeBloch - Page 13




                                        -13-                                          
                    Supplies                          17,560                          
                    Travel                            12,365                          
                    Meals and entertainment                                           
          (after 50-percent reduction)     1,588                                      
                    Utilities                         10,921                          
                    Wages                             87,201                          
                    Other expenses1                    18,719                         
                    Total                          239,745                            
                    1 The 1997 Schedule C did not identify any of                     
               these “other expenses”.                                                
               2.  1998                                                               
               For 1998 Federal income tax purposes, petitioners did not              
          report the income and expenses of the Nature’s Touch shops on               
          their personal income tax return.  Their 1998 personal return               
          included a 1998 Schedule C that reported the income and expenses            
          of Michelsen as “Board Chairman of NT”.  The schedule reported on           
          the basis of the cash receipts and disbursements method of                  
          accounting that the reported business had a net profit of $23,193           
          for 1998, resulting from gross receipts of $36,808, total                   
          expenses of $4,137, and home business expenses of $9,478.  The              
          schedule was accompanied by a 1998 Form 8829 reporting that 25.2            
          percent of the residence (630/2500) was used exclusively for                
          business purposes and that the $9,478 of home business expenses             
          consisted of operating expenses of $4,702 (inclusive of the                 
          $2,367 carryover from 1997) and depreciation of $4,776 (inclusive           
          of the $2,388 carryover from 1997).  The Form 8829 itemized the             
          home business expenses as follows:                                          








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