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respondent's determination, having been made in the notice of
deficiency, is presumed correct, and petitioners have the burden
of proof to establish that such determination is erroneous. Rule
142(a); Welch v. Helvering, 290 U.S. at 115. This they have
failed to do. Accordingly, respondent's adjustments to
petitioners' depreciation deductions for the years 1983, 1984,
and 1985 are sustained.
State Income Tax Refunds
Respondent included in petitioners' gross income state
income tax refunds in the amounts of $1,538, and $1,346 for 1984,
and 1985, respectively. Section 111(a) provides that a refund of
taxes for which a deduction was allowed in an earlier year must
be included in the year of receipt, except to the extent the
earlier deduction did not result in a tax benefit. Tracy v.
Commissioner, T.C. Memo. 1985-40. Because petitioners claimed
itemized deductions for the years 1983 and 1984 for state income
taxes paid, it would appear that the exception set forth in
section 111(a) is not applicable. Consequently, respondent's
adjustments increasing petitioners' income by the amounts of
state income tax refunds received in the years 1984 and 1985 are
sustained.
Interest Income
Respondent determined that petitioners understated their
income by omitting $262 of interest income received in 1985.
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