Robert L. and Brenda J. Tarter - Page 2

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          penalty of $91,498.20, and a section 6651(a)(1) addition to tax             
          of $22,693.10 for failure to file timely.  With regard to the               
          income tax deficiency, we decide whether petitioners’ claimed               
          trade or business expense deductions are allowable.  We hold they           
          are not.  We also decide whether petitioners are liable for the             
          accuracy-related penalty.  We hold that they are.  Petitioners do           
          not dispute that their income tax return was filed untimely and             
          do not assert that a reasonable basis existed for their late                
          filing.  We sustain the addition to tax without further comment.            
                                  FINDINGS OF FACT                                    
               The parties have filed with the Court stipulated facts and             
          exhibits.  The stipulated facts are found accordingly.                      
          Petitioners are husband and wife, and they jointly filed a 2001             
          Form 1040, U.S. Individual Income Tax Return.  They resided in              
          Lincoln, California, when their petition was filed with the                 
          A.   Petitioner’s Business History                                          
               Robert Tarter (petitioner) went into business for himself in           
          approximately 1991, beginning B & B Construction (B&B).  B&B was            
          engaged in the business of preparing and pouring concrete                   
          foundations and flatwork for residential projects.                          
               B&B operated as a sole proprietorship at its inception and             
          was still operating as a sole proprietorship at the beginning of            
          2001.  On December 15, 2000, petitioner formed BBT Enterprises,             

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