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OPINION
Respondent recomputed all of the income and certain of the
expenses Imperial reported on its tax returns and reallocated
that income and expense to petitioners. These reallocated
amounts did not reflect any deductions for interest even though
Imperial had claimed deductions for substantial amounts of
interest expense.2 Petitioners argue that insofar as they are to
be taxed on Imperial's income, they should be allowed to claim
all the deductions Imperial reported. They also dispute
respondent's determinations of additions to tax for negligence
and for substantial understatement.
Interest Deductions
Petitioners must prove that respondent's determinations set
forth in the notices of deficiency are incorrect. Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioners must
also prove their entitlement to any claimed deduction.
Deductions are strictly a matter of legislative grace, and
petitioners must show that their claimed deductions are allowed
by the Code. New Colonial Ice Co. v. Helvering, 292 U.S. 435
(1934).
2Imperial's returns for the fiscal years ending June 30,
1984 through 1986 claimed interest expense deductions of $7,043,
$67,458, and $68,347, respectively.
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