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On audit, respondent determined that petitioner's claimed
home office expenses did not qualify for a deduction and that
petitioner’s books and records did not adequately substantiate
many of the claimed cash expenses relating to petitioner’s scrap
metal recycling business, and respondent generally disallowed all
expenses claimed as deductions where the nature and amount of the
expenses could not be substantiated by specific receipts or
billing statements.
Respondent refused to accept petitioner’s computer
spreadsheets as adequate substantiation of expenses incurred by
petitioner in his scrap metal recycling business because
respondent determined that the backup documentation was
inadequate. For example, during the audit and at trial,
respondent did not allow or concede deductions for claimed
expenses for employee wages where petitioner could not identify
either Social Security numbers or addresses of the employees, but
respondent did allow or concede deductions for wage expenses
indicated on the computer spreadsheets for employees for whom
petitioner provided Social Security numbers or addresses.
Respondent also disallowed claimed expenses for wages of the
warehouse foreman as reflected on the computer spreadsheets in
excess of $12,000 for each year.
The schedule below sets forth the expenses at issue herein
as reflected in petitioner’s computer spreadsheets, as claimed by
petitioner on his 1990 and 1991 Federal income tax returns, and
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