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Discussion
Deductions are a matter of legislative grace, and the burden
of showing the right to deductions is on the taxpayer. See Rule
142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
A. Schedule C Deductions
The Schedule C deductions that remain in issue fall into
four broad categories: (1) Office expenses; (2) meals and
entertainment; (3) repairs and maintenance; and (4)
parking/tolls.
1. Office Expenses
Total office expense deductions at issue are $73,294.50 for
1993, and $23,815.97 for 1994, and fall into two broad
categories: (a) Office expense deductions allegedly taken to
offset improperly reported income items; and (b) other office
expenses.
a. Office Expense Deductions Allegedly Taken To Offset
Improperly Reported Income Items
The first issue is whether petitioner can deduct $72,516 and
$15,956.97 in office expense deductions allegedly taken to offset
improperly reported income items in 1993 and 1994, respectively.
Petitioner argues that he included nontaxable items in gross
receipts and then deducted the same amount on Schedule C as an
office expense because the items included in income were
nontaxable. From this, we conclude that petitioner acknowledges
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