Hoora Rahimi and Isaac William Hammond - Page 3

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               Respondent determined for 1999 a deficiency in petitioners'            
          Federal income tax of $16,420 and an accuracy-related penalty               
          under section 6662(a) of $3,167.                                            
               In the petition, petitioners did not challenge respondent's            
          adjustments to their Schedule A, Itemized Deductions, totaling              
          $43,204.  Pursuant to Rule 34(b)(4), Schedule A deductions in               
          excess of those stipulated by the parties are deemed conceded by            
          petitioners.                                                                
               The issues remaining for decision are whether petitioners              
          are:  (1) Entitled to deductions on Schedule C, Profit or Loss              
          From Business; (2) entitled to offset a rental real estate loss             
          against wage income; and (3) liable for an accuracy-related                 
          penalty under section 6662(a).                                              
               The stipulated facts and the exhibits received into evidence           
          are incorporated herein by reference.  At the time the petition             
          in this case was filed, petitioners resided in Chadds Ford,                 
          Pennsylvania.                                                               
                                     Background                                       
          A.  Petitioner's Employment During 1999                                     
               1.  Eli Lilly & Co.                                                    
               Dr. Isaac William Hammond (petitioner) worked full time                
          throughout 1999 for Eli Lilly & Co. (Eli Lilly) conducting                  
          pharmaceutical research.  He received $149,615.82 as employee               
          wages from Eli Lilly in 1999.                                               






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