- 14 -
for that year because respondent determined that those expenses
were not incurred in a trade or business. However, respondent
allowed petitioners to include those expenses as Schedule A
deductions subject to the 2-percent adjusted gross income limita-
tion for miscellaneous deductions under section 67(a) and the 3-
percent adjusted gross income limitation under section 68(a).5
In the notice for 1993 and 1994, respondent disallowed all the
expenses that petitioners claimed in Schedules C of their returns
for those years because petitioners did not establish that those
expenses were ordinary and necessary expenses incurred in the
ordinary course of business. In that notice, respondent did not
allow petitioners to include any of those disallowed expenses as
Schedule A deductions.
Petitioners contend that respondent improperly disallowed
the Schedule C expenses that they claimed for the years at issue.
Petitioners also assert that they are entitled for 1992 to
additional expenses of $323.97 and $200 for legal fees and
engineering fees, respectively, that they did not claim in
Schedule C of their return for that year. Respondent disagrees.
Deductions are strictly a matter of legislative grace, and
petitioners bear the burden of proving that they are entitled to
the deductions claimed. INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992). Section 162(a) allows a deduction for ordinary
and necessary expenses paid or incurred during the taxable year
5 See supra note 3 for respondent's concession regarding the
real estate taxes of $2,775.04 that petitioners claimed in
Schedule C of their 1992 return.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011