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claimed.5 See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503
U.S. 79 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435
(1934). Taxpayers are required to maintain records that are
sufficient to enable the Commissioner to determine their correct
tax liability. See sec. 6001; sec. 1.6001-1(a), Income Tax Regs.
In addition, the taxpayer bears the burden of substantiating the
amount and purpose of the item for the claimed deduction. See
Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam
540 F.2d 821 (5th Cir. 1976).
At trial, petitioner, in addition to his section 263A
capitalization argument, referred to the operating expenditures
that he claims for prior years as being subject to the passive
activity rules and argued that they had been suspended. While we
agree that petitioner’s rental activity was subject to the
passive activity rules of section 469, petitioner has not proved
that he had losses which were suspended in prior years.
Petitioner, however, is entitled to deduct the operating expenses
5 The Internal Revenue Service Restructuring & Reform Act
of 1998, Pub.L. 105-206, sec. 3001, 112 Stat. 685, 726, added
sec. 7491, which is applicable to court proceedings arising in
connection with examinations commencing after July 22, 1998.
Under sec. 7491, Congress requires the burden of proof to be
shifted to the Commissioner, subject to certain limitations,
where a taxpayer introduces credible evidence with respect to
factual issues relevant to ascertaining the taxpayer’s liability
for tax. In the instant case, petitioner has not raised the
application of this provision. Further, although petitioner, in
addressing other matters, stated at trial that respondent
conducted an examination in 1998, we cannot ascertain from the
record whether the Commissioner’s examination commenced after
July 22, 1998, in order even to consider whether sec. 7491 is
applicable in this case.
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