- 2 -
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
Respondent issued a timely notice of deficiency to
petitioners. Initially, respondent determined a $16,079
deficiency in petitioners’ 2002 Federal income tax. Respondent
reasoned that the expenses claimed on petitioners’ Form 1040,
U.S. Individual Income Tax Return, were not deductible by them
because they were incurred by a corporation and could only be
claimed on a Form 1120, U.S. Corporation Income Tax Return.
Respondent reduced the deductions claimed on petitioners’
Schedule C, Profit or Loss From Business, by $39,257. Prior to
trial, respondent filed a Motion for Leave to File an Answer,
seeking to correct the amount of the deficiency by decreasing it
to $13,410. Respondent represented that the notice of deficiency
had failed to disallow the entire amount of petitioners’ Schedule
C deductions; rather, they should have been reduced by $47,521.
Respondent also inconsistently included in petitioners’ income
$39,529 of Schedule C gross receipts, which triggered self-
employment taxes. In his answer, respondent conceded that
petitioners did not owe self-employment taxes. The issue for
decision is whether petitioners are entitled to deduct the
$47,521 in expenses reported on their Schedule C.
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Last modified: November 10, 2007