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placed in bankruptcy in 1990, petitioners had filed various
lawsuits in connection with Mr. Huang’s former employment with
NCSU. During the bankruptcy proceedings, the trustee auctioned
petitioners’ causes of action in these matters as assets of the
bankruptcy estate. Petitioners, who outbid NCSU and paid the
bankruptcy estate $102,000, reacquired their rights to sue NCSU
in 1991. Petitioners were lent the $102,000 by Mr. Huang’s
sister in Taiwan, and the $29,103 investment expense on their
1995 return represents an interest payment on this loan which
petitioners paid in cash.
We need not address the merits of petitioners’ contention
that interest payments on the alleged $102,000 loan would be
deductible as investment interest expense. Although it is clear
that $102,000 was paid to the bankruptcy estate, petitioners have
failed to adequately substantiate the existence of a bona fide
loan, they have failed to substantiate that they were required to
pay interest thereon, and they have failed to substantiate that
they in fact made any interest payment during 1995. Petitioners
therefore are not entitled to the claimed investment expense.
Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.
Legal Expenses
Taxpayers generally may deduct expenses which are ordinary
and necessary in carrying on the trade or business of being an
employee. Sec. 162(a). Taxpayers also generally may deduct
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