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SOMETIMES TRUTH ISN'T A GOOD DEFENSE

March 03, 2003

Stephen Pacilio reported a loss on his Schedule C, the schedule used by sole proprietors to report their business income. The schedule reported no business revenues, only expenses. The IRS decided he didn't have a real business and therefore wasn't entitled to business deductions. Mr. Pacilio disagreed and took his case to the Tax Court.

Mr. Pacilio clearly was not coached for his deposition for the case, judging from this exchange he had with the government's attorney:

Q. Do you have any businesses that you currently own or operate?
A. No.

Q. Okay. Are you still conducting any kind of a business of any sort out of the garage?
A. No.

Q. When did that cease?
A. Never started.

Q. Never did any work out of your garage?
A. No.

Q. Never sold anything out of your garage?
A. No.

Q. Never fabricated anything out of your garage?
A. No.

The truth will set you free, but it isn't necessarily helpful in winning a tax case. Needless to say, Mr. Pacilio lost. He probably didn't help his case any when, at the trial itself, "he described an activity that he and his father operated out of (his) garage."

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