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On November 28, 1990, petitioner withdrew $17,558 from a
U.S. bank, representing money from an IRA established on his
behalf by Varian (Varian IRA). On December 18, 1990, petitioner
transferred $23,000 from the Bank of America to an account at a
branch of the Hong Kong & Shanghai Banking Corp. located in Hong
Kong.
While in Hong Kong, petitioner undertook steps to develop a
computer software package designed to handle currency exchange
transactions. Petitioner intended to market the software package
once developed. On Schedule C of his 1990 Federal income tax
return, petitioner claimed a deduction of $2,618 consisting of
expenses for advertising, bad debts, commissions and fees,
depreciation and/or section 179 expenses, and meals and
entertainment. Petitioner returned to the United States for
approximately 1 month in 1991 in order to purchase a computer
system for use in the development of the software package.
Petitioner returned to the United States on a permanent basis in
October of 1992.
Petitioner signed his 1990 Federal income tax return on
April 1, 1995, and the return was stamped received at the
Internal Revenue Service Center in Fresno, California, on July 8,
1995. On his 1990 Federal income tax return, petitioner reported
his filing status as single and claimed Schedule A deductions in
the amount of $2,046 for State and local income taxes, $1,130 for
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