William K. Starr - Page 3

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               Respondent disallowed the $18,748 per diem lodging expense             
          deduction claimed by petitioner but allowed a deduction of $5,595           
          for the lodging expenses actually incurred while operating the              
          business in Washington.  The actual expenses were computed as               
                           Rent              $3,521                                   
                           Electricity       257                                      
                           Cable             178                                      
                           Utilities         544                                      
                           Entertainment     1,095                                    
                           Total             $5,595                                   
               Petitioner concedes that the maximum lodging deduction that            
          he could claim in 1995 using a per diem rate would be $12,948,              
          computed as the maximum Federal per diem rate multiplied by the             
          156 days that petitioner lived in Woodinville for business                  
          purposes.  The maximum Federal per diem rate for lodging in King            
          County, Washington, where Woodinville is located, was $83 per day           
          during 1995.                                                                
               Petitioner contends that a self-employed individual is                 
          entitled to use the Federal per diem rate to substantiate                   
          expenditures for lodging away from home.  Respondent claims that            
          petitioner, as a sole proprietor, is precluded from using the               
          Federal per diem rate and is entitled only to a deduction equal             
          to his actual lodging expenses substantiated under section                  

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