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Starting in the early 1990s, Mrs. Storer assisted her
husband with his photographic pursuits by recording his expenses
in journals. With an educational background in accounting from
the local community college, Mrs. Storer recorded these expenses
using the cash basis method of accounting. Mrs. Storer has also
prepared State tax documents, including sales tax reports.
In 1993, petitioners engaged a management consultant to
assist them in preparing a 5-year projection for turning their
photography activity into a business. The management consultant
provided petitioners with a series of flexible budgets and
projections spanning through 2002. The management company based
its projections on the assumption that by the year 2000,
petitioners would have $21,200 in gross sales, and that by 2002,
petitioners would have $21,500 in gross sales.
Prior to 1993, Mr. Storer had purchased a large amount of
“analog” photography and darkroom equipment for the studio and
darkroom in the basement of petitioners’ home. Between 1993 and
2002, petitioners began to replace their “analog” equipment with
new digital cameras, printers, scanners, and the supplies for
printing digital photographs; namely, paper and ink cartridges.
Petitioners completely dismantled their basement studio and
darkroom in the early 2000s. Upon dismantling their basement
studio, petitioners set up a “digital darkroom” consisting of a
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Last modified: November 10, 2007