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maintaining sufficient records to substantiate the propriety of a
deduction. Sec. 1.6001-1(a), Income Tax Regs. At trial, no
reliable evidence was produced by petitioner. A photocopy of a
handwritten note made by Mr. Hoover listing various expenses was
produced. Many of the items in the handwritten note were
illegible, the descriptions were ambiguous, and no amounts were
supported by documentation. Petitioner also produced a letter
from his lawyers, listing expenses incurred by petitioner.10 The
letter does not assist petitioner in substantiating his expenses.
Accordingly, we find petitioner's evidence insufficient to
substantiate his claimed expenses involving the T.J. Cinnamons
Bakery franchise.
Investment Interest Expense Deduction
Respondent, in her notice of deficiency, disallowed
petitioner's claimed investment interest expense deduction of
$156,441 and determined that petitioner realized $404,210 of
income from debt forgiveness.11 On brief, respondent abandoned
10The letter from petitioner's attorneys was sent to the
sellers of the T.J. Cinnamons Bakery franchise. It was written
as part of petitioner's attempts to rescind the transaction and
recover his money.
11Petitioner, in his 1990 Federal income tax return,
reported $1,224,395 as investment interest expense carry forward.
This amount was also disallowed by respondent in her notice of
deficiency. This disallowance affected the deficiency determined
for 1991. Petitioner concedes on brief that the 1990 Federal
income tax return inaccurately reported interest accrued in prior
years, because none of that interest was actually paid until
1990. Accordingly, the interest carried forward will consist
(continued...)
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