Barney K. and Lindy W. Huang - Page 14

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          is a nondeductible personal expense under section 262(a).  We               
          therefore find that petitioners have failed to substantiate the             
          amount of deductible expenses, if any, incurred in connection               
          with this malpractice suit.  Sec. 6001; sec. 1.6001-1(a), (e),              
          Income Tax Regs.                                                            
               The remainder of the expenses were incurred in connection              
          with the malicious prosecution suit.  Petitioners argue that this           
          suit is related to petitioner’s former employment with NCSU.                
          They assert that the underlying criminal charges against                    
          petitioner were brought as part of an ongoing conspiracy to                 
          deprive petitioner of his job.  Petitioners, however, have not              
          offered any credible evidence in support of this assertion.  We             
          have found that petitioners and the Wang family had been personal           
          friends, and that Mr. Huang and Ms. Wang were together on the               
          date of the alleged rape and assault because of this friendship.            
          We accordingly find that the rape and assault charges arose from            
          the personal relationship between Mr. Huang and Ms. Wang, and               
          that the malicious prosecution action is likewise personal in               
          nature.  Thus, these legal expenses are nondeductible personal              
          expenses.  Sec. 262(a); United States v. Gilmore, supra.                    
          Pension and Annuity Income                                                  
               On their 1996 return, petitioners reported taxable pension             
          and annuity income of $32,397.  Respondent determined that                  
          petitioners had additional unreported pension and annuity income            






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