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and 1989 income tax returns. Respondent challenges the claimed
depreciation with respect to certain vending machines because
petitioners failed to establish their ownership of or basis in
those machines. In that same vein, respondent also determined
that petitioners are not entitled to certain other deductions
related to the vending machines for the 1986 and 1989 tax years.
Respondent also determined that petitioners failed to report
income paid to them by or on their behalf by their corporations.
Conversely, petitioners contend that they are entitled to
depreciate, as well as to deduct all related expenses with
respect to, the vending machines in question.
A. Depreciation
Petitioners contend that the assignments of security
interests in the vending machines gave them title and, therefore,
ownership. Consequently, petitioners contend that in 1986 they
owned approximately 70 out of the 490 vending machines operated
by their corporations.
Respondent counters that: (1) Petitioners have no capital
investment in the vending machines; (2) there are no documents in
the record which prove that petitioners owned the vending
machines; and (3) the vending machines have not been shown to
have a useful life exceeding 1 year.
Deductions are a matter of legislative grace, and the
taxpayer bears the burden of proving that he or she is entitled
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