Chong-Kak and Sang-Ok Lee - Page 9

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               Except for respondent's allegations of fraud, petitioners              
          must prove that respondent's determinations set forth in her                
          notices of deficiency are incorrect.5  Rule 142(a) and (b); Welch           
          v. Helvering, 290 U.S. 111, 115 (1933).  Petitioners must also              
          prove their entitlement to any deduction.  New Colonial Ice Co.             
          v. Helvering, 292 U.S. 435, 440 (1934).  Deductions are matters             
          of legislative grace, and petitioners must show that their                  
          deductions are allowed by the Code.  Petitioners must also keep             
          sufficient records to substantiate any deduction that would                 
          otherwise be allowed by the Code.  Sec. 6001.                               
          1.  Profit on Sales                                                         
               Petitioners do not dispute that Hamalee failed to report the           
          sales set forth in the notices of deficiency.  The dispute rests            
          on the calculation of Hamalee's gross profit percentage                     

          5 Petitioners allege in their brief that respondent must                    
          prove her determination of constructive distributions because               
          this determination is arbitrary and capricious.  We refuse to               
          consider this allegation because petitioners raised it for the              
          first time on brief.  If petitioners had wanted to place this               
          allegation before us, they should have made the allegation in               
          their petition or taken other steps to preserve it.  By failing             
          to do so, petitioners have conceded it.  See, e.g., Merlino v.              
          Commissioner, T.C. Memo. 1993-200, and the cases cited therein;             
          see also Rule 34(b)(4) and (5).                                             

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