Steven J. and Michele D. Scagliotta - Page 10

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                During the trial, petitioners orally moved to amend their                    
          pleadings to conform with the evidence to increase the amount of                   
          their business bad debt deduction from $12,500 to $31,650.  The                    
          Court granted this motion pursuant to Rule 41(b).  Petitioner's                    
          testimony and the record are not clear as to how petitioner                        
          arrived at this figure; however, it appears, and the Court so                      
          finds, that the claimed amount of $31,650 represents essentially                   
          the amount found by the Bankruptcy Court to be petitioner's claim                  
          against Ms. Marshall, $33,875.97.                                                  
                The determinations of the Commissioner in a notice of                        
          deficiency are presumed correct, and the burden is on the                          
          taxpayer to prove that the determinations are in error.  Rule                      
          142(a); Welch v. Helvering, 290 U.S. 111 (1933).                                   
                Deductions are a matter of legislative grace and "'only as                   
          there is clear provision therefor can any particular deduction be                  
          allowed.'"  Deputy v. duPont, 308 U.S. 488, 493 (1940) (quoting                    
          New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934)).                      
                The first issue is whether petitioners were engaged in a                     
          trade or business during the year 1990 entitling them to a                         
          deduction of the expenses claimed on Schedule C of their return                    
          (except the business bad debt deduction, which is considered                       
          separately).  Section 162(a) provides generally that there shall                   
          be allowed as a deduction "all the ordinary and necessary                          
          expenses paid or incurred during the taxable year in carrying on                   





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