David W. Chiu - Page 20

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            inadmissable hearsay.16  Fed. R. Evid. 802.  Therefore, based                                
            upon the record, petitioner has failed to substantiate his                                   
            claimed deduction for contributions of property, and the                                     
            deduction is accordingly denied.                                                             
            Schedule C Expenses                                                                          
                  Petitioner claimed a deduction totaling $2,618 for expenses                            
            listed on Schedule C of his return, in columns17 denominated                                 
            "Advertising", "Bad debts * * * ", "Commissions and fees",                                   
            "Depreciation and section 179 expense deduction * * * ", and                                 
            "Meals and entertainment".  At trial, petitioner testified that                              
            these expenses were "basically * * * all R and D", incurred for                              
            "a lot of research" that petitioner undertook in an effort to                                
            develop a computer software package.  Petitioner also testified                              
            that the Schedule C expenses were incurred in connection with a                              
            "market survey" undertaken shortly after his arrival in Hong                                 
                  Respondent proposes to disallow any deduction for the                                  
            Schedule C expenses on the grounds that petitioner has failed                                
            either to substantiate that the expenses were paid or incurred or                            
            to demonstrate that they were paid or incurred in carrying on a                              
            trade or business as required by section 162(a).                                             

                  16See supra note 5.                                                                    
                  17Certain dollar figures on the Schedule C were typed too                              
            far from any column category to permit a determination of the                                
            category under which petitioner meant to classify the expense.                               

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