Richard John Kadunc - Page 2

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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,                                  
                  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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