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decision are: (1) Whether petitioners are entitled to a gambling
loss deduction not claimed on their 1994 Federal income tax
return; and (2) whether petitioners may exclude from their 1994
income certain amounts received during that year pursuant to
long-term disability insurance coverage.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioners are husband and wife. They filed a timely joint
Federal income tax return for the year 1994. At the time the
petition was filed, petitioners resided in El Cajon, California.
Prior to the year in issue, Hazel B. Smith was employed by
Sears, Roebuck and Co. (Sears). She retired from Sears either
shortly before, or early in, 1994. As a result of an accident
that occurred prior to 1994, she was confined to a wheelchair for
most, or all, of that year.
John D. Smith was employed as a counter person by
Consolidated Electrical Distributors, Inc. (Consolidated) from
1987 until he injured his back in an employment-related accident
in 1992. Consolidated provided long-term disability benefits to
its employees through a group plan underwritten by ITT Hartford
(Hartford). As a result of his back injury, he applied for and
received long-term disability benefits under the group plan.
Long-term disability benefits were approved in September 1993 to
continue during the period of his disability, but not beyond
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