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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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