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III. Schedule C Deductions
Income tax deductions are a matter of legislative grace, and
the burden of clearly showing the right to the claimed deduction
is on the taxpayer. See INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992). Moreover, deductions are strictly construed and
allowed only “‘as there is a clear provision therefor.’” Id.
(quoting New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934)). Taxpayers must substantiate any deductions claimed.
See Hradesky v. Commissioner, 65 T.C. 87 (1975), affd. per curiam
540 F.2d 821 (5th Cir. 1976). Section 6001 provides that a
taxpayer must keep records that suffice to establish the amount
of the claimed deductions.
Section 162(a) allows a deduction for all ordinary and
necessary business expenses paid or incurred during the taxable
year in carrying on a trade or business. In the instant case,
petitioner claimed Schedule C deductions of $27,732 and $35,718,
respectively, on his 1991 and 1992 Federal income tax returns.
At trial, however, he failed to produce any records to support
these deductions. Moreover, his income tax returns give us ample
10(...continued)
1.111-1(b)(2)(ii)(b), Income Tax Regs. Under these regulations,
the $1,753 recovery exclusion might have been reduced for 1991 if
carryovers from 1989 and 1990 had been given effect. However, we
have sustained respondent’s disallowance of such carryovers and
thus they do not affect the amount of the recovery exclusion in
this instance.
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