Rodney J. and Lorraina S. Huang - Page 7

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               SEC. 262.  PERSONAL, LIVING, AND FAMILY EXPENSES.                      
                    (a) General Rule.--Except as otherwise expressly                  
               provided in this chapter, no deduction shall be allowed                
               for personal, living, or family expenses.                              
                    (b) Treatment of Certain Phone Expenses.--For                     
               purposes of subsection (a), in the case of an                          
               individual, any charge (including taxes thereon) for                   
               basic local telephone service with respect to the lst                  
               telephone line provided to any residence of the                        
               taxpayer shall be treated as a personal expense.                       
          The tax returns that they filed and the journals that petitioners           
          presented create a strong inference that petitioners have                   
          improperly deducted many household and living expenses.  They               
          have failed to present evidence that would overcome this                    
          inference.                                                                  
               Section 274(d) requires, with respect to entertainment                 
          expenses, that taxpayers substantiate, among other things, the              
          business purpose of each expense and the business relationship to           
          the taxpayer of persons entertained.  Although they deducted                
          thousands of dollars each year for “entertainment”, petitioners             
          have failed to substantiate any of those expenses as required by            
          section 274.  The amounts claimed apparently included in many               
          instances three meals a day for petitioners and their dependent             
          son.  Although they claim that they were entertaining potential             
          customers, this claim is inherently improbable.                             
               Petitioner Rodney J. Huang testified that the total monthly            
          rent for petitioners’ residence was $1,350 and that he allocated            
          $700 to business expense (for 1992; in 1993, the amount claimed             




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