Donald P. and Margie C. Osborne - Page 2

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          2001 and 2002; (3) petitioners failed to report gross income                
          relating to 2001 and 2002; and (4) petitioners are liable for               
          section 6662(a)1 accuracy-related penalties.                                
                                  FINDINGS OF FACT                                    
               Petitioner Donald Osborne (Mr. Osborne) was a self-employed            
          truck driver.  In addition, he maintained a business, Don Osborne           
          Enterprises, which rented trailers and bought and sold over-the-            
          road trucks and trailers.  On his Schedules C, Profit or Loss               
          from Business, relating to 2001 and 2002, Mr. Osborne combined              
          income and expenses relating to these activities and claimed                
          expense deductions for depreciation, insurance, interest,                   
          supplies, tax and licenses, travel, and other expenses.                     
               In 2004, petitioners’ 2001 and 2002 returns were selected              
          for audit, and respondent’s Revenue Agent Mary Miller began an              
          examination of the items on the returns.  To substantiate their             
          expense deductions, petitioners submitted canceled checks, credit           
          card statements, insurance records, and other documentation.                
          Petitioners were given credit for the expenses that were properly           
          substantiated.  Using canceled checks and vehicle title                     
          information for Mr. Osborne’s business, Ms. Miller made                     
          adjustments to the inventory, cost of goods sold, and depreciable           

               1   Unless otherwise indicated, all section references are             
          to the Internal Revenue Code of 1986, as amended, and all Rule              
          references are to the Tax Court Rules of Practice and Procedure.            

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