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Respondent issued petitioners a notice of deficiency for
their 1994 tax year. In the notice of deficiency, respondent
disallowed petitioners' claimed partnership loss carryover and
their charitable contribution deduction. Respondent adjusted
petitioners' claimed medical expense deduction and earned income
credit due to the increases in petitioners' adjusted gross
income. Respondent determined that petitioners were liable for
the self-employment tax and for the accuracy-related penalty.
Respondent also determined that petitioners were entitled to a
self-employment tax credit.
While no deficiency was determined for 1993, the statement
of adjustments attached to the notice of deficiency included
adjustments to petitioners' 1993 Federal income tax return. The
adjustments for 1993 consisted of the disallowance of
petitioners' claimed partnership loss carryover from 1992,
charitable contribution deduction, and medical expense deduction.
Respondent also made an adjustment to petitioners' claimed earned
income credit for 1993 as a result of the adjustment to
petitioners' adjusted gross income.
Discussion
We begin by noting that the Commissioner's determinations
are presumed correct. See Rule 142(a); Welch v. Helvering, 290
U.S. 111, 115 (1933). Deductions are a matter of legislative
grace, and the taxpayers bear the burden of proving that they are
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