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respondent’s determination on this issue. Sec. 6001; sec.
1.6001-1(a), (e), Income Tax Regs.
Miscellaneous Itemized Deductions
Petitioners claimed miscellaneous itemized deductions for
the following expenses in the respective taxable years:
1995 1996 1997
Unreimbursed employee expenses $4,331 $5,035 $7,087
Legal expenses 3,738 16,274 34,026
Investment 29,103 -- --
Other 860 -- --
38,032 21,309 41,113
Respondent decreased petitioners’ deductions in 1995 and 1996 and
increased their deduction in 1997, allowing deductions for
expenses totaling $10,319 in 1995, $17,940 in 1996, and $42,013
in 1997.
In 1988, petitioner husband (Mr. Huang) was charged with
attempted second degree rape and assault on a female, Grace Wang.
Petitioners were close friends with the Wang family. Mr. Huang
had known Ms. Wang’s father from 30 years earlier; he had known
Ms. Wang since she was about 5 years old, and Ms. Wang was
married to one of Mr. Huang’s coworkers at North Carolina State
University (NCSU). The alleged rape and assault occurred on a
day when Ms. Wang had brought her child to petitioners’ home so
that her child could play with petitioners’ child.
After a jury trial, Mr. Huang was acquitted of the rape
charge but convicted on the assault charge. The conviction
subsequently was reversed by an appellate court, which found that
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