David W. Chiu - Page 4

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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                             
                  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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