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stipulation of facts and attached exhibits are incorporated
herein by this reference. At the time of filing the petition,
petitioner resided in Clearwater, Florida.
We begin by noting that respondent's determinations are
presumed correct, and petitioner bears the burden of proving that
those determinations are erroneous. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a
matter of legislative grace, and petitioner bears the burden of
proving that he is entitled to any deductions claimed. INDOPCO,
Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
1. Bad Debt Deduction
Between 1982 and 1986, petitioner lent a total of $5,000 to
Rochelle Laumbattus. Petitioner received neither security nor a
promissory note in return for the loan. Although Ms. Laumbattus
repaid $500 of the loan soon after it was made, no further
payments were made until 1992. In 1991, Ms. Laumbattus informed
petitioner that she was not generating enough current income to
repay the loan. The record also contains the following written
statement by Ms. Laumbattus: "In 1991 I was unable to repay the
loan. But am now making payments on it."
Petitioner did not pursue any legal action in an attempt to
collect the balance of the loan. In 1991, petitioner claimed a
business bad debt deduction in the amount of $4,500 on a Schedule
C that listed "Business Manager" as petitioner's profession.
During the years 1992 through 1995, however, Ms. Laumbattus fully
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