Ruth N. Nelson - Page 13




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                                     Discussion                                       
               For 1992, respondent's disallowance of $4,329 in itemized              
          deductions and corresponding allowance of a standard deduction of           
          $3,600 are computational adjustments that will be resolved by the           
          Court's holding on whether BRVC was an activity not engaged in              
          for profit for that year.  Also, for 1993, respondent's                     
          determination of $2,598 in hobby income and allowance of an                 
          additional $914 in itemized deductions3 are computational                   
          adjustments that will be resolved by the Court's holding on                 
          whether BRVC was an activity not engaged in for profit for 1993.            
               Additionally, for 1993, respondent determined that                     
          petitioner realized income from an unreported State income tax              
          refund of $1,227.  Respondent contends that this adjustment is              
          computational based on the determination for 1992 that BRVC                 
          constituted an activity not engaged in for profit.  The Court               
          does not agree with respondent's treatment of this item for the             
          following reasons.                                                          
               In order for a taxpayer to be required to include a State              
          income tax refund in income, the taxpayer must have received a              

               3    Due to the increase in petitioner's adjusted gross                
          income, petitioner's itemized deductions for medical and dental             
          expenses were phased out entirely.  However, in connection with             
          BRVC, petitioner was allowed an additional $2,598 in                        
          miscellaneous itemized deductions subject to the 2-percent of               
          adjusted gross income limitation of section 67(a)(which was also            
          affected by the increase in adjusted gross income).  This                   
          resulted in a $914 net increase in petitioner's 1993 itemized               
          deductions.                                                                 





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