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Respondent had interviewed a third-party former employee of
PCCL. This interview provided respondent with information that
PCCL was "fixing its books". In addition, respondent had
received documentation from Paige, which was supported by the
interview with the employee.
In Simpson Fin. Servs., Inc. v. Commissioner, T.C. Memo.
1996-317, the Commissioner disallowed a portion of the taxpayer's
claimed expenses because of lack of substantiation.
Documentation was eventually provided to the Commissioner's
appeals officer, and subsequently to District Counsel. Based on
the documentation provided to the Commissioner, the parties
settled all issues raised in the notice of deficiency. We denied
the taxpayer's request for an award of attorney's fees.
Specifically, we said:
In the notices of deficiency, respondent premised the
adjustments primarily on petitioners' failure to
substantiate items on their returns. Deductions are a
matter of legislative grace, and petitioners bore the
burden of establishing their entitlement thereto. * * *
In addition, section 6001 imposed on petitioners an
affirmative duty to maintain books and records
sufficient to establish items reported on their
returns. It was reasonable for respondent not to
concede the adjustments until she had received and
verified adequate substantiation for the items in
question. Harrison v. Commissioner, 854 F.2d 263, 265
(7th Cir. 1988), affg. T.C. Memo. 1987-52; Sokol v.
Commissioner, 92 T.C. 760, 765 (1989). [Citation
omitted.]
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