Horace D'Angelo - Page 8

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          involved claims of breach of fiduciary duty, failure to pay rent,           
          and failure to make appropriate partnership contributions.                  
          Oakland 3 was a lawsuit in which Pomeroy had accused petitioner             
          of, among other things, taking over H.K. Peach and otherwise                
          breaching his fiduciary duty.  With respect to all these                    
          proceedings, petitioner claimed in 1995 as a deduction legal fees           
          of $90,392 (relating to Oakland 1 and Oakland 2) and $770                   
          (relating to Oakland 3).                                                    
               For 1996, petitioner incurred legal expenses in the                    
          following proceedings which are at issue in this case: (1)                  
          Oakland 1, (2) Oakland 2, (3) Oakland County Case No. 91-413076-            
          CK (Oakland 4), and (4) Oakland County Case No. 93-455889                   
          (Oakland 5).  Oakland 4 was a lawsuit where petitioner sued                 
          individually and on behalf of REH1 as coplaintiffs.  The case               
          included an allegation against Pomeroy and others for a failure             
          to account for profits.  Oakland 5 was a lawsuit by Pomeroy and             
          his business partner, whose name is not material to this                    
          proceeding, to compel petitioner to turn over his partnership               
          interest in TROY-SAK pursuant to an agreement.  In 1996,                    
          petitioner claimed as a deduction legal fees of $57,799 (relating           
          to Oakland 1, Oakland 2, Oakland 3, Oakland 4, and Oakland 5).              
               Respondent maintains that petitioner may not deduct these              
          amounts because he is not engaged in “any trade or business”                








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