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1.274-5T(b), Temporary Income Tax Regs., 50 Fed. Reg. 46006 (Nov.
6, 1985).
Petitioners argue that sections 162 and 274(d) should not be
applied in this case because respondent did not raise these
issues during the audit of their return. Petitioners further
assert that the “substantiation issue” was not raised by
respondent until presented at trial. Subject to exceptions
inapplicable to this case, this Court does not look behind the
statutory notice of deficiency: A trial before this Court is a
proceeding de novo, and our determination as to a taxpayer's tax
liability is based upon the merits of the case. See Greenberg’s
Express, Inc. v. Commissioner, 62 T.C. 324, 327-328 (1974).
Furthermore, the notice of deficiency in this case specifically
stated that the various business expenses were disallowed because
it had not been established that each amount “was for an ordinary
and necessary business expense, or was expended for the purpose
designated.” This statement raises issues under both section
162(a)--whether the expenses were ordinary and necessary--and
section 274(d)--whether the expenses were properly substantiated,
i.e., whether petitioners established that the amounts were
expended for the purpose designated.
Petitioners also argue that the burden of proof in this case
should be shifted to respondent because petitioners presented
credible evidence with respect to factual issues. Although
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