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not receive the $1,500 from Mr. Williams in 1989 and thus are
entitled to a bad debt deduction. Mrs. Yei testified that she did
not ask her husband about the receipt of the payment until
preparing their petition, which was filed with the Court on October
18, 1993. We accept Mrs. Yei's testimony and find that petitioners
erroneously reported $1,500 as income on their 1989 return.
Correction of this mistake should be made in the Rule 155
computation.
Issue 5. Unreimbursed Expense
Mr. Yei gave 1,000 shares of his Cirtex stock to Katherine
Cunningham, Cirtex's quality control manager, as a bonus.
Allegedly, the stock was given, rather than cash, due to Cirtex's
cash flow problems. When Ms. Cunningham left the company's employ
in 1989, petitioners paid her $1.60 per share for the stock, again
due to the fact that Cirtex did not have funds to purchase the
stock and Mr. Yei's perceived personal obligation to compensate Ms.
Cunningham with cash. Petitioners contend they are entitled to a
deduction for the $1,600 given Ms. Cunningham as an unreimbursed
business expense under section 162. Respondent contends that the
Cirtex stock petitioners acquired is a capital asset for which
petitioners are not entitled to a deduction.
Section 162 permits the deduction of ordinary and necessary
expenses paid or incurred in carrying on a trade or business.
Bonuses to employees will constitute allowable deductions from
gross income when such payments are made as additional compensation
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