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for individual taxpayers are set forth in part VI and part VII of
subchapter B, chapter 1, subtitle A of the Internal Revenue Code.
See secs. 161-222.
Petitioners assert that they are entitled to itemized
deductions totaling $1,118,870, as originally set forth in their
Federal income tax return. Respondent concedes that petitioners
are entitled to deduct the following expenses totaling $243,363
as itemized deductions: (1) $37,738, identified by petitioners
as “Option Int” for “US Bank Corp.”, as investment interest
expenses under section 163; (2) $186,370, identified by
petitioners as “Option Int” for “Merrill Lynch”, as investment
interest expenses under section 163; and (3) $19,255 of the
$20,164 identified by petitioners as “Opt.int” for “Merrill
Lynch”, as investment interest expenses under section 163.
Respondent also concedes that petitioners are entitled to deduct
the following expenses as miscellaneous itemized deductions,
totaling $84,581: (1) $71,657, identified by petitioners as
“MLF” or “Merrill Lynch Fees”, as expenses for the production of
income under section 212; and (2) $12,924 of the $26,000
identified by petitioners as “US Bank Fees”, as expenses for the
production of income under section 212.”17 However, respondent
17 Petitioners have not objected to respondents’
characterization of these expenses as miscellaneous itemized
deductions. An impact of this characterization is that such
deductions are subject to sec. 67(a), which states: “In the case
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