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not “contracted bona fide and for an adequate and full
consideration in money or money’s worth.” The Stern estate paid
the deficiency and sued for a refund in the U.S. District Court,
Southern District of Indiana. In September 1997, the District
Court held that petitioner’s claim against the estate was
deductible.
C. Petitioners’ 1993 Return
On their 1993 return, petitioners reported one-half
($91,250) of the amount petitioner received in satisfaction of
her claim as income from wages, salaries, tips, etc. Petitioners
did not report the other one-half of the award ($91,250) as
income or deduct any of their expenses of caring for Mr. Stern.
OPINION
A. Whether Certain Payments From the Stern Estate Were
Nontaxable Reimbursements of Petitioners’ Expenses
Respondent contends that the $182,500 that petitioners
received from Mr. Stern’s estate in 1993 was compensation for
their services to Mr. Stern, and that petitioners may not deduct
their expenses on behalf of Mr. Stern because petitioners paid
those expenses in prior taxable years.2 Respondent also contends
that the expenses were not deductible under section 162 and were
personal expenses under sections 262 and 263.
2 Respondent concedes that petitioners may deduct $17,138
of their expenses in 1993. Consequently, respondent contends
that petitioners underreported their 1993 income by $74,112
($91,250 minus $17,138).
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