- 4 -
Advertising $12,940
Car and truck 5,200
Insurance 5,400
Legal 3,100
Office 6,000
Rent 6,900
Repairs and Maintence 2,100
Supplies 4,790
Tax and licenses 550
Utilities 3,150
Total 50,130
In preparing their return, petitioners had to rely upon
estimates, for their records had been lost. Thus, it is not
clear whether the income figure is accurate. Moreover,
petitioners neglected to deduct their labor costs for the
cleaning help.2 In the notice of deficiency, respondent
disallowed all claimed expenses for lack of substantiation. In
addition, respondent determined that there was no reasonable
cause for the delinquent filing and asserted the addition to tax
under section 6651(a)(1).
Discussion
Section 162(a) allows the deduction of “ordinary and
necessary” expenses paid or incurred during the taxable year in
carrying on any trade or business. Deductions are a matter of
legislative grace, and taxpayers must prove that they are
entitled to the claimed deductions. Rule 142(a); INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992). They must keep
2 JDB had no employees. All cleaning work was done by
petitioners and “subcontractors” hired at the time work was
required.
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Last modified: May 25, 2011