James G. LeBloch and Cathy Michelsen LeBloch - Page 16




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                    1 The 1999 Schedule C did not identify any of                     
               these “other expenses”.                                                
          E.  Amended Returns                                                         
               On their 1998 Federal income tax return, petitioners                   
          reported adjusted gross income of $73,361.  The $73,361 consisted           
          of the following reported items and amounts:                                
                    LeBloch’s wages from IRS          $71,091                         
                    Interest                            1,004                         
                    Schedule C net profit              23,193                         
                    IRA deduction                      (2,000)                        
                    One-half of self-employment tax    (1,639)                        
                    Alimony paid                      (18,288)                        
                    Adjusted gross income            73,361                           
          On their 1999 Federal income tax return, petitioners reported               
          adjusted gross income of $104,971.  The $104,971 consisted of the           
          following reported items and amounts:                                       
                    LeBloch’s wages from IRS          $72,130                         
                    Michelsen’s wages from NT          31,000                         
                    Interest and ordinary dividends        84                         
                    Taxable refunds                        90                         
                    Schedule C net profit              14,029                         
                    Capital gain                           53                         
                    One-half of self-employment tax      (991)                        
                    Alimony paid                      (11,424)                        
                    Adjusted gross income           104,971                           
               On or about April 14, 2002, after the Commissioner had begun           
          his audit of the subject years and had proposed his adjustments             
          increasing petitioners’ taxable income to reflect the unreported            
          income ascertained under the bank account analyses, petitioners             
          filed an amended 1998 Federal income tax return claiming without            
          further explanation that $21,554 reported as compensation                   
          received from NT during 1998 was really a loan repayment.  At the           






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