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Petitioners then fully deducted these losses on line 18 of their
returns (Forms 1040) for each of the years in question. Only the
portion of the losses attributable to petitioner's condominium
unit remains in issue. Upon examination, respondent disallowed
the claimed losses, reasoning that petitioner's ownership of the
condominium unit constituted a passive activity for purposes of
section 469, thereby precluding petitioners from offsetting
losses attributable to the unit against nonpassive income.
Discussion
We begin by noting that petitioners bear the burden of
proving that respondent's determination is erroneous. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). This
burden remains when a case is fully stipulated. Borchers v.
Commissioner, 95 T.C. 82, 90-91 (1990), affd. 943 F.2d 22 (8th
Cir. 1991). Moreover, deductions are a matter of legislative
grace, and petitioners bear the burden of proving that they are
entitled to any of the deductions claimed. INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992).
Section 162 permits deductions for all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Section 212 permits deductions
3(...continued)
returns are attributable to the condominium unit in question in
addition to property owned by petitioners in Cloudcroft, New
Mexico. Since there is no allocation on the returns, or
elsewhere in the record, we have included the entire amounts.
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