Daniel Francis Kelly, Jr. - Page 7




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          Ms. Doe.  The entire $30,000 was paid by USAA, as well as                   
          petitioner's legal expenses incurred in defending the civil suit.           
          On that same date, GBC and its insurance companies and other                
          related entities and employees entered into an out-of-court                 
          settlement with Ms. Doe that called for the payment of $90,000 to           
          Ms. Doe, the full amount of which was paid by the insurance                 
          companies.                                                                  
               On Schedule C, Profit or Loss From Business (Schedule C), of           
          his 1991 Federal income tax return, petitioner claimed a                    
          deduction of $13,737 for legal expenses incurred in the defense             
          of the criminal sexual assault charges.  On Schedule C of his               
          1992 Federal income tax return, petitioner claimed a deduction of           
          $31,694 for legal expenses incurred in the defense of the                   
          criminal sexual assault charges.                                            
               In the notice of deficiency respondent disallowed                      
          petitioner's $13,737 legal expense deduction for 1991 and the               
          $31,694 legal expense deduction for 1992.  Respondent made                  
          several additional adjustments to petitioner's 1992 return that             
          are not at issue in this case.4                                             



          4                                                                           
               For 1992, respondent disallowed $1,749 of petitioner's                 
          claimed $5,000 Schedule C "travel/meals/entertainment" expense              
          and disallowed petitioner's $3,780 Schedule E "commissions"                 
          expense.  Petitioner did not dispute these adjustments, and,                
          thus, they are considered conceded by petitioner.  Rule 34(b)(4);           
          Jarvis v. Commissioner, 78 T.C. 646, 658 n.19 (1982).  Also in              
          the notice of deficiency, respondent allowed petitioner                     
          additional deductions for Schedule C auto expenses of $2,142,               
          Schedule C depreciation of $2,083, and Schedule E expenses of               
          $166.                                                                       

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