James Lewis and Lilian E. Hunter - Page 3

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          165(h),5 the casualty loss deduction equaled $38,829.                       
               After examining the return, respondent determined that                 
          petitioners’ deductions were overstated by $41,056, resulting in            
          a deficiency of $10,048.  In the notice of deficiency, respondent           
          disallowed $5,704 of the $10,530 in medical and dental expenses             
          claimed by petitioners on the ground that petitioners had failed            
          to substantiate such amounts.6  Respondent also disallowed the              
          casualty loss deduction because petitioners had failed to show              
          that they had suffered a deductible loss in 1996 under section              
          Medical and Dental Expense Deduction                                        
               Deductions are strictly a matter of legislative grace, and             
          taxpayers bear the burden of proving that they are entitled to              
          any deductions claimed on their return.  See Rule 142(a);                   
          INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).  Taxpayers           
          must substantiate amounts claimed as deductions by maintaining              
          the records necessary to establish such entitlement.  See sec.              

               5  Sec. 165(h) states in part that “Any loss * * * shall be            
          allowed only to the extent that the amount of the loss to such              
          individual arising from each casualty * * * exceeds $100" and               
          only to the extent that the net casualty loss “exceeds 10 percent           
          of the adjusted gross income”.                                              
               6   The remaining $4,826 in medical and dental expenses no             
          longer exceeds the 7.5-percent threshold limitation under sec.              
          213.  Therefore, after respondent’s adjustments, petitioners                
          cannot deduct any of the remaining medical and dental expenses.             

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