T.C. Summary Opinion 2001-184
UNITED STATES TAX COURT
HUGH T. BROWN, JR., AND KRISTI L. BROWN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 225-01S. Filed December 12, 2001.
Kelly Abreu, for petitioners.
James J. Posedel, for respondent.
WOLFE, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code in effect for the years in issue. The decision to
be entered is not reviewable by any other court, and this opinion
should not be cited as authority.
- 2 -
Respondent determined deficiencies of $2,509 and $2,085 in
petitioners’ Federal income taxes for 1996 and 1997,
respectively. The issues for decision are: (1) Whether
petitioners’ gold mining activity was an activity engaged in for
profit during 1996 and 1997 within the meaning of section 183,
and (2) whether petitioners are entitled to deductions claimed on
Schedules C, Profit or Loss From Business, for expenditures
relating to their gold mining activity during 1996 and 1997.
Some of the facts have been stipulated and are so found.
The stipulations of facts and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
Redlands, California, when the petition was filed.
Background
During the years in issue, Hugh T. Brown, Jr. (petitioner),
worked as a civilian employee for the U.S. Army Corps of
Engineers. His wife, petitioner Kristi L. Brown (Mrs. Brown),
was not employed outside the home during this time and listed her
occupation as “student” on joint Federal income tax returns for
the years in issue. Petitioners’ three children were,
respectively, 16, 20, and 21 years of age at the time of trial
(September 13, 2001).
Petitioner’s education after high school consisted of 2
years of junior college courses. Petitioner served 4 years in
the U.S. Army, and he was discharged in 1971. Between 1971 and
- 3 -
1987, petitioner worked as a field engineer for three different
mining companies and frequently worked in underground tunnels and
shafts. In 1988, petitioner started his own business, K.L. Brown
Construction (Brown Construction), which provided general field
engineering services to the mining industry, and also installed
street utilities. During its 4-year existence, Brown
Construction employed as many as 25 people at a time. Most of
Brown Construction’s clients were general prime contractors
engaged in industrial mining of sand, gravel, and limestone
through both above-ground surface mining and underground tunnel
mining shafts.
In the early 1990s, petitioner became interested in gold
mining. His previous mining experience did not involve gold.
Through his research about the gold mining industry, petitioner
learned that many gold mining operations were discontinued during
World War II because of the war effort and remained abandoned
after the war. Many of these mines were located in the deserts
of southern California. Petitioner researched the production
rates of some of the abandoned mines. He concluded that with the
modern technology now available and the higher price of gold
since removal of the artificial $32 per ounce price ceiling, by
minimizing labor costs, a small enterprise might be able to
operate some of the abandoned prewar mines profitably.
- 4 -
In 1994, petitioner, who lived with his family in West
Virginia, accepted a job in California with his current employer,
the U.S. Army Corps of Engineers. Petitioner accepted the job in
part because of its proximity to many of the abandoned gold mines
that he had learned about in his research. Petitioner hoped that
his gold mining would eventually become so successful that he
would not have to depend on an employer. He moved with his
family to California in 1994, and he began mining for gold in
1995.
Petitioner devoted a substantial amount of time to his gold
mining activity. Each week during the years in issue he worked
four 10-hour days for the U.S. Army Corp of Engineers and devoted
the remaining 3 days of the week to gold mining. Typically, on
Thursday evening he would pack his equipment into his truck and
travel that night to a mining site in the desert as much as 150
miles from his home. Petitioner then would spend the next 3 days
mining for gold during the day and camping by himself at the
mining site at night. He returned home on Sunday afternoons.
Generally, no one from his family accompanied him on these trips.
Because his mining activity frequently led him to remote
locations inaccessible by road, petitioner devised and
constructed equipment small enough to permit him to transport it
on foot for considerable distances. It was lightweight portable
equipment that was a miniaturized version of more mainstream
- 5 -
equipment. The machinery was operated by a small motorcycle
battery and could be collapsed and put into a backpack. It cost
petitioner about $1,000 to purchase the parts and peripheral
devices.
Petitioners’ revenue from gold mining activity during the
years in issue came from two sources: (1) The sale of the gold
itself at various trade shows that petitioner attended once or
twice each year, and (2) the fees petitioner charged to people
who occasionally accompanied him on guided tours on his weekend
mining expeditions. Each source produced about half the total
revenue of the gold mining activity during the years in issue.
In 1997, petitioner discontinued conducting guided tours of
abandoned mines because of the inherent danger of gold mining and
his potential liability if someone were to be injured. From that
point on, in petitioner’s words, he “zeroed in * * * on the
mining and prospecting venture.”
Petitioners filed joint Federal income tax returns for the
years in issue. With each tax return, they attached a Schedule C
for their gold mining activity, which they called Brown
Enterprises. On the Schedules C, they reported the following:
Income 1996 1997
Gross receipts $350 $525
Less: cost of goods sold 124 125
Gross income 226 400
Expenses
Advertising $143 $260
Car and truck expenses 3,574 5,011
- 6 -
Depreciation and sec. 179 3,901 2,422
Interest 317 -0-
Legal and professional services 500 100
Office expense 591 893
Repairs and maintenance 565 177
Supplies 1,940 1,230
Travel -0- 220
Meals and entertainment [50%] 604 424
Utilities 788 1,024
Other expenses1 2,296 2,515
2
Total expenses 15,219 14,276
Total net losses (14,993) (213,876)
1
The “Other expenses” claimed for 1996 were:
Cont. ed., books, and journals $692
Dues and subscriptions 72
Licenses and permits 145
Promotional items 487
Telephone 737
Uniforms and laundry 163
The “Other expenses” claimed for 1997 were:
Dues and publications $285
Miscellaneous 50
Parking 22
Postage, etc. 445
Printing 66
Tools 560
Sales and marketing 665
Promotional efforts 422
2
Petitioners actually reported total expenses of
$14,296 and total net losses of $13,896, and the slight
mathematical errors have been corrected.
Respondent concedes that petitioners incurred and paid all
of the expenses listed on their Schedules C for Brown Enterprises
during the years in issue.
Respondent disallowed the Schedule C losses on the ground
that petitioners did not establish that their mining activity
- 7 -
constituted a bona fide business venture entered into for profit
under section 183 and also because respondent did not concede
that the undisputed expenditures were deductible business
expenses.
Discussion
Section 183(a) provides that if an activity engaged in by an
individual is not engaged in for profit, no deduction
attributable to such activity shall be allowed, except as
provided in section 183(b). In the case of an activity not
engaged in for profit, section 183(b)(1) allows a deduction for
expenses that are otherwise deductible without regard to whether
the activity is engaged in for profit. Section 183(b)(2) allows
a deduction for expenses that would be deductible only if the
activity were engaged in for profit, but only to the extent that
the total gross income derived from the activity exceeds the
deductions allowed by section 183(b)(1).
An “activity not engaged in for profit” is any activity for
which deductions are not allowable under section 162 or under
paragraph (1) or (2) of section 212. Sec. 183(c). The profit
motive required by section 183 is the same as the profit motive
required by sections 162 and 212. See Antonides v. Commissioner,
893 F.2d 656, 659 (4th Cir. 1990), affg. 91 T.C. 686 (1988); sec.
1.183-2(a), Income Tax Regs.
- 8 -
To deduct expenses of an activity under either section 162
or 212 (and thus avoid the limitations of section 183) a taxpayer
must show that he or she engaged in or carried on the activity
with an actual and honest objective of making a profit.
Antonides v. Commissioner, supra; Ronnen v. Commissioner, 90 T.C.
74, 91 (1988); Fuchs v. Commissioner, 83 T.C. 79, 97-98 (1984);
Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without
opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income
Tax Regs. Although a reasonable expectation of profit is not
required, the taxpayer’s profit objective must be bona fide.
Hulter v. Commissioner, 91 T.C. 371, 393 (1988); Beck v.
Commissioner, 85 T.C. 557, 569 (1985); sec. 1.183-2(a), Income
Tax Regs. Whether a taxpayer has a bona fide profit objective is
a question of fact to be resolved from all the surrounding facts
and circumstances. Golanty v. Commissioner, 72 T.C. 411, 426
(1979), affd. without published opinion 647 F.2d 170 (9th Cir.
1981); sec. 1.183-2(b), Income Tax Regs. Greater weight is given
to objective facts than to a taxpayer’s mere statement of intent.
Thomas v. Commissioner, 84 T.C. 1244, 1269 (1985), affd. 792 F.2d
1256 (4th Cir. 1986); sec. 1.183-2(a), Income Tax Regs.
Section 1.183-2(b), Income Tax Regs., sets forth a
nonexclusive list of factors which should normally be taken into
account in determining whether the taxpayer has the requisite
profit objective. The factors are: (1) The manner in which the
- 9 -
taxpayer carries on the activity; (2) the expertise of the
taxpayer or his advisers; (3) the time and effort expended by the
taxpayer in carrying on the activity; (4) the expectation that
the assets used in the activity may appreciate in value; (5) the
success of the taxpayer in carrying on other similar or
dissimilar activities; (6) the taxpayer’s history of income or
losses with respect to the activity; (7) the amount of occasional
profits, if any, which are earned; (8) the financial status of
the taxpayer; and (9) elements of personal pleasure or
recreation.
No single factor, nor the existence of even a majority of
the factors, is controlling, but rather it is an evaluation of
all the facts and circumstances in the case, taken as a whole,
which is determinative. Keanini v. Commissioner, 94 T.C. 41, 47
(1990); sec. 1.183-2(b), Income Tax Regs. These factors are not
all applicable or appropriate for every case. Abramson v.
Commissioner, 86 T.C. 360, 371 (1986). In making our evaluation
of the foregoing factors, we may consider evidence from years
subsequent to the years in issue “to the extent it may create
inferences regarding the existence of a profit motive in the
earlier years.” Hillman v. Commissioner, T.C. Memo. 1999-255
(citing Hoyle v. Commissioner, T.C. Memo. 1994-592 and Smith v.
Commissioner, T.C. Memo. 1993-140).
- 10 -
Petitioner argues that he had an actual and honest objective
to realize a profit from his mining activity during the years at
issue, so his deductions with respect to his mining activity
should not be limited by section 183. Respondent contends that
an analysis of the relevant objective factors reveals that
petitioner lacked a bona fide objective to make a profit.
Applying the Factors
1. The Manner in Which Petitioner Conducted the Activity
The fact that a taxpayer carries on the activity in a
businesslike manner and maintains complete and accurate books and
records may indicate that the activity is engaged in for profit.
Sec. 1.183-2(b)(1), Income Tax Regs. Generally, if the activity
in question is carried on in a manner substantially similar to
other activities of the same nature that are profitable, a profit
motive may be indicated. See Sullivan v. Commissioner, T.C.
Memo. 1998-367, affd. without published opinion 202 F.3d 264 (5th
Cir. 1999); sec. 1.183-2(b)(1), Income Tax Regs. Gold mining and
other similar speculative activities are different from most
other business activities because they generally produce no
significant income until a find is made, and then the income is
earned in one lump sum. In Harrison v. Commissioner, T.C. Memo.
1996-509, we found that a taxpayer’s contemporaneous handwritten
lists of expenses were sufficient records for his gold mining and
- 11 -
treasure salvaging activity for purposes of section 183.1 There,
after noting that the taxpayer’s record keeping “left something
to be desired”, we said:
The treasure hunting activity was different from
petitioner’s other businesses. Different record
keeping methods are therefore expected, and lack of
record keeping is not determinative of intent.
Treasure hunting is not the type of business where
thorough records of gains and losses are necessary to a
successful operation. Cf. Farrell v. Commissioner,
T.C. Memo. 1983-542. This type of activity is likely
to generate only expenditures with no income until a
find is made at which time the income will come in one
lump sum. * * * [Id.]
Here, as in the Harrison case, petitioner kept no formal set
of books and records for his gold mining and prospecting
activity. He did not maintain a general ledger or a spreadsheet.
No financial statements ever were prepared, except a balance
sheet prepared for petitioner’s meeting with an IRS Appeals
officer. Petitioner did have a business plan, but it was written
in December 2000, long after the years in issue. Petitioner did
not maintain a separate bank account for his gold mining
activity.
Petitioner’s record keeping consisted of the maintenance of
separate folders for his expenses. As he incurred each expense,
he put the receipt in the appropriate folder.
1
The Court treated the taxpayer’s gold mining and treasure
salvaging operations as one activity for purposes of sec. 183.
- 12 -
The nonbusinesslike manner in which petitioner carried on
his business would normally weigh against him in the
determination of whether he had a bona fide profit objective.
However, as in the Harrison case, because of the speculative
nature of petitioner’s business, we view the manner in which he
carried on his business as a neutral factor.
2. The Expertise of Petitioner or His Advisers
Preparation for the activity by extensive study of its
accepted business, economic, and scientific practices or
consultation with people who are expert in these practices may
indicate a profit objective where the taxpayer carries on the
activity in accordance with such practices. Sec. 1.183-2(b)(2),
Income Tax Regs.
Before he started his gold mining activity, petitioner had
more than 20 years of work experience in the mining and quarrying
industry. Although petitioner had never mined specifically for
gold, he had considerable knowledge of the mining process in
general. In the early 1990s, petitioner began reading
prospecting books and became interested in gold mining.
Petitioner researched the history of abandoned gold mines in
California, analyzing their production rates at the time they
were abandoned. Petitioner sought advice from local dealers of
gold mining equipment. He also built his own lightweight
- 13 -
portable mining device that allowed him to travel long distances
on foot to remote mining locations in the desert.
Petitioner relied on both his own expertise about mining in
general and his research concerning gold mining specifically.
Petitioner did not seek professional advice on the business and
economic aspects of gold mining. We view his failure to seek
such professional advice before commencing his gold mining
activity as counterbalancing his significant experience in mining
in general. We, therefore, conclude that this factor is neutral.
3. Petitioner’s Time and Effort Devoted to the Activity
The fact that a taxpayer devotes much of his personal time
and effort to carrying on an activity may indicate an intention
to derive a profit, particularly if the activity does not have
substantial personal or recreational aspects. See Daley v.
Commissioner, T.C. Memo. 1996-259; sec. 1.183-2(b)(3), Income Tax
Regs. A taxpayer’s withdrawal from another occupation to devote
most of his energies to the activity may be evidence that the
activity was engaged in for profit. Sec. 1.183-2(b)(3), Income
Tax Regs.
Both parties agree that petitioner devoted a significant
amount of time and effort to his gold mining activity. During
the years in issue, petitioner compressed a 40-hour workweek
schedule into 4 days. Because of this arrangement of his
employment, he was able to spend 3 consecutive days each week
- 14 -
mining for gold. Almost every weekend during the years in issue,
petitioner would leave his home on Thursday evening and drive up
to 150 miles into the desert area of southern California to mine
for gold.
This factor favors petitioners’ position.
4. The Expectation That Assets Used in the Activity
May Appreciate in Value
The term “profit” encompasses revenue from operations and
appreciation in the value of assets, such as land. Sec. 1.183-
2(b)(4), Income Tax Regs. Petitioner did not own any gold-
bearing land or any mining claims, and his equipment could only
depreciate. Some equipment such as ropes and other climbing
apparatus required frequent replacement for safety reasons. In
the absence of any property with substantial appreciation
potential, we do not consider this factor significant.
5. Petitioner’s Success in Other Entrepreneurial Activities
The fact that a taxpayer has engaged in similar activities
in the past and converted them from unprofitable to profitable
enterprises may indicate that the taxpayer is engaged in the
present activity for a profit, even though the activity is
presently unprofitable. Sec. 1.183-2(b)(5), Income Tax Regs.
After being employed as a field engineer by several
companies over a 17-year period, petitioner started his own
business, Brown Construction, in 1988. Brown Construction
provided general field engineering services to the mining
- 15 -
industry and also installed street utilities. In 1991,
petitioner terminated Brown Construction and obtained employment
as a field engineer at another company. Petitioner attributed
the short life of his business to the weak economy of the early
1990s. In 1995, petitioner started a second activity, Brown
Enterprises, the gold mining activity at issue.
Petitioner’s unsuccessful business experience is not
particularly helpful to us in determining whether petitioner
engaged in gold mining for profit. The two activities were
fundamentally different. Brown Construction provided consulting
services to the mining industry and the installation of utilities
in streets, employing at any given time up to 25 people. Brown
Enterprises, on the other hand, had no employees; its entire
operation consisted of petitioner’s prospecting for gold in the
desert. We conclude that this factor is neutral or slightly
negative for petitioners, since petitioner’s sole venture in
business for himself, although very different from the gold
mining activity, was not a success.
6. Petitioners’ History of Income or Loss From the
Activity
A series of losses during the initial or startup stage of an
activity may not necessarily be an indication that the activity
is not engaged in for profit. However, where losses continue to
be sustained beyond the period which customarily is necessary to
bring the operation to profitable status, such continued losses,
- 16 -
if not explainable as due to customary business risks or
reverses, may indicate that the activity is not being engaged in
for profit. Sec. 1.183-2(b)(6), Income Tax Regs. Under section
1.183-2(b)(6), Income Tax Regs., there is less concern over
losses in the initial stages of an activity. A greater concern
arises when unexplained losses have continued for an extended
period. See Allen v. Commissioner, 72 T.C. 28, 34 (1979).
Here, petitioners’ losses from their gold mining activity
steadily decreased each year until 2000, when petitioners
reported their first profit from Brown Enterprises. The
profit/loss history of Brown Enterprises is summarized as
follows:
Year Profit/(Loss)
1995 ($20,339)
1996 (14,993)
1997 (13,896)
1998 (5,056)
1999 (2,681)
2000 203
The only tax returns of petitioners that were submitted into the
record were for 1996 and 1997, and detailed financial information
about other years is not available on this record. Consequently,
the cause of petitioners’ diminishing losses, whether it be
increased revenue or cost-cutting measures, or both, is unclear.
Regardless of the cause, petitioners’ progress from substantial
losses to modest profitability is significant.
This factor favors petitioners.
- 17 -
7. The Amount of Occasional Profits Generated by the
Activity
The amount of profits earned in relation to the amount of
losses incurred, the amount of the investment, and the value of
the assets in use may indicate a profit objective. Sec. 1.183-
2(b)(7), Income Tax Regs. An opportunity to earn a substantial
ultimate profit in a highly speculative venture is ordinarily
sufficient to indicate that the activity is engaged in for profit
even though losses or only occasional small profits are actually
generated. Id.
In this case, petitioners’ losses from Brown Enterprises in
comparison with its revenues during the years in issue are
substantial. For 1996 and 1997, petitioners reported total
expenses of $15,219 and $14,276, respectively, and gross income
of $226 and $400, respectively.
We have recognized in prior cases that a gold mining
enterprise is speculative and may take years to realize a profit,
but that it also presents an opportunity to earn substantial
profits. See Tinnell v. Commissioner, T.C. Memo. 2001-106. The
record in this case shows that petitioner entered upon his mining
activity with the hope that by operating on a very small scale he
could minimize expenses and achieve modest profitability. He
also anticipated that if he found any significant amount of gold,
he would file a claim and sell it to a mining company for
development. Petitioner entered this activity with the belief
- 18 -
that if a significant amount of gold were found, the return would
be so great that any past accumulated expenses would be recouped
and a substantial profit would be realized. See sec. 1.183-2(a),
Income Tax Regs. (“it may be found that an investor in a wildcat
oil well who incurs very substantial expenditures is in the
venture for profit even though the expectation of a profit might
be considered unreasonable.”)
The possibility of a speculative profit becomes less
speculative when a taxpayer shows he actually realized a profit
in years subsequent to those at issue. See Hillman v.
Commissioner, T.C. Memo. 1999-255; Hoyle v. Commissioner, T.C.
Memo. 1994-592. Here, petitioner’s efforts to bring his gold
mining activity to profitability were succeeding; his net losses
from Brown Enterprises decreased each year until 2000, when he
reported a small profit. His uninterrupted path to profitability
supports the conclusion that he had a bona fide profit objective
during the years in issue.
8. Petitioners’ Financial Status
The fact that the taxpayer does not have substantial income
or capital from sources other than the activity in question may
indicate that the activity is engaged in for profit. Sec. 1.183-
2(b)(8), Income Tax Regs. Substantial income from sources other
than the activity (particularly if the losses from the activity
generate substantial tax benefits) may indicate a lack of profit
- 19 -
objective, especially if there are personal or recreational
elements involved.
The Browns are not wealthy people. During the years in
issue, petitioner reported wages of $34,689 and $42,811,
respectively, while Mrs. Brown did not work for compensation.
Their only source of income was petitioner’s wages. Although
petitioners were able to offset the full amount of the losses
from their gold mining activity against Mr. Brown’s wages, the
resulting tax benefits to petitioners were not very substantial.
This activity was not a tax shelter. This factor favors
petitioners.
9. Elements of Personal Pleasure or Recreation
The presence of personal or recreational elements in
carrying on an activity may indicate that the activity is not
engaged in for profit. On the other hand, a profit objective may
be indicated where an activity lacks any appeal other than
profit. Sec. 1.183-2(b)(9), Income Tax Regs.
At trial, no significant testimony or evidence was presented
about any personal pleasure or recreational aspects of gold
mining that petitioner may have enjoyed. Nearly every week
during the years in issue, petitioner sacrificed his entire
weekend with his family to travel alone into the deserts of
southern California to mine for gold. Family members rarely
accompanied him. Also, the risks of injury petitioner faced on
- 20 -
his mining expeditions were substantial. In a recent
consideration of mining for gold and precious metals in the
southwestern United States, this Court found that such gold
mining is “an extremely laborious activity that requires
substantial time, energy, and financial support. Mining also
entails numerous health risks, including heat prostration in the
summer months, silicosis, and cyanide poisoning.” Tinnell v.
Commissioner, supra. In light of the hardships and serious
dangers involved, we are convinced that any personal pleasure or
recreational aspects that petitioner might have enjoyed while
mining for gold were secondary. Moreover, some component of
personal pleasure does not negate a bona fide profit objective.
“[A] business will not be turned into a hobby merely because the
owner finds it pleasurable; suffering has never been made a
prerequisite to deductibility. ‘Success in business is largely
obtained by pleasurable interest therein.’” Jackson v.
Commissioner, 59 T.C. 312, 317 (1972) (quoting Wilson v. Eisner,
282 F. 38, 42 (2d Cir. 1922)); see also sec. 1.183-2(b)(9),
Income Tax Regs. This factor favors petitioners’ position.
Conclusion
In this case we are satisfied that, despite the substantial
losses over an extended period, during the years in issue
petitioners had a bona fide profit objective. This conclusion is
far from unique. See Engdahl v. Commissioner, 72 T.C. 659 (1979)
- 21 -
(net losses in 12 of 12 years); Allen v. Commissioner, 72 T.C. 28
(1979) (net losses in 12 of 12 years); Hoyle v. Commissioner,
T.C. Memo. 1994-592 (net losses in 16 of 16 years). Gold mining,
especially, is an activity in which sustained losses are not
unusual. See Tinnell v. Commissioner, supra (finding the
requisite profit objective in gold mining activity although the
taxpayer had no income from mining during the first 9 years of
the activity and losses in 11 of the subsequent 11 years). Here
petitioner has made a major commitment of his time, energy, and
resources in hopes of locating a valuable mining claim on
property that was mined and abandoned long ago. He goes
prospecting in the inhospitable desert of southern California 3
days out of 7, month after month, and leaves his family behind.
To be able to do this he works 10-hour days, 4 days each week.
He has studied mining, in which he already had a background, and
has devised lightweight equipment that enables him to venture
beyond where vehicles can go. Periodically he peddles gold
nuggets at fairs. Petitioner seeks, and in our judgment
sincerely hopes to find and establish, a claim that is rich
enough to sell to a mining company for exploitation. He seeks
royalties from such exploitation.
We would not voluntarily endure the privations petitioner
endures or spend our time and resources as he has. We doubt that
his business plan is reasonable. But on this record and after
- 22 -
listening to petitioner’s testimony, we are convinced that he had
an actual and honest objective of making a profit from his gold
mining activity. The evidence in this case simply does not
support any other conclusion. We hold that petitioners’ gold
mining activity during the years in issue was an activity engaged
in for profit within the meaning of section 183.
The parties have stipulated that petitioners actually
expended the amounts claimed as deductions on Schedules C of
their 1996 and 1997 tax returns. Respondent disputes whether the
amounts in question were expended for the claimed purposes.
Petitioner testified that he expended the funds in the amounts
and for the purposes listed on the tax returns. Respondent
cross-examined him without noticeable success. We consider
petitioner’s testimony on this subject credible. The deductions
claimed are reasonable. We sustain petitioners on this issue of
substantiation.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for petitioners.