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The issues for decision are: (1) Whether a State income tax
refund of $1,738 received by petitioner during 1991 constitutes
taxable income for that year; (2) whether petitioner is entitled
to deduct home mortgage interest expenses in excess of an amount
allowed by respondent; and (3) whether petitioner is liable for
the penalty under section 6673(a)(1). The remaining adjustment
in the notice of deficiency to petitioner's miscellaneous
deductions is computational and will be resolved by the Court's
holdings on the aforementioned issues.
The parties submitted this case fully stipulated. The
stipulation of facts and the annexed exhibits are so found and
are incorporated herein by reference. At the time the petition
was filed, petitioner's legal residence was Springfield,
Virginia.
Petitioner claimed a deduction on his 1990 Federal income
tax return for State and local income tax paid in 1990 in the
amount of $2,621.55. During 1991, petitioner received a check
from the State of Virginia in the amount of $1,738, reflecting a
State income tax refund. Petitioner failed to report this refund
on his 1991 Federal income tax return. Further, on his 1991
return petitioner claimed an itemized deduction for home mortgage
interest in the amount of $16,896.
In the notice of deficiency, respondent determined that the
State income tax refund received by petitioner during 1991
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