- 2 -
for 1992 and accuracy-related penalties under section 6662(a)1 of
$20,268 for 1991 and $4,503 for 1992.
After concessions by the parties,2 the issues for decision
are:
1. Whether petitioners may deduct: (a) Loan guaranty
payments of $18,329 paid in 1991 and $98,000 paid in 1992 as
business bad debts under section 166, and (b) legal fees
(incurred in defending against enforcement of the loan
guaranties) of $213,239 paid in 1991 and $45,636 paid in 1992 as
ordinary and necessary business expenses under section 162;3 and
2. whether petitioners are liable for the accuracy-related
penalties under section 6662 for 1991 and 1992.
1Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue and Rule
references are to the Tax Court Rules of Practice and Procedure.
2Petitioners concede that they had unreported interest
income of $947 for 1991 and $1,337 for 1992. Petitioners further
concede that they are not entitled to Schedule C deductions (1)
in 1991 of $9,171 for travel, $1,598 for meals, $2,619 for
supplies, $4,228 for double deductions, and $2,976 for interest,
and (2) in 1992 of $4,675 for interest. With respect to
disallowed travel and entertainment expenses reported by
petitioners on Schedule C for 1991, respondent concedes that
petitioners are entitled to deduct $2,002 as employee expenses
and $579 as sec. 212 expenses on Schedule A for 1991. Respondent
also agrees that $11,149 of the legal and professional expenses
for 1992 are deductible under sec. 162 on petitioners' Schedule C
- Medical.
3Petitioners concede that none of the legal fees paid prior
to 1991 are deductible in 1991 or 1992. Respondent concedes that
the legal fees and related expenses paid in 1991 and 1992 are
deductible in those years but only as miscellaneous itemized
deductions under sec. 165(c)(2) or 212.
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