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property in service in the next most recent year. See sec. 1.47-
1(e)(1)(ii) and (iii), Income Tax Regs.
The regulations under section 47 raise rebuttable
presumptions that the facts are adverse to the taxpayer who fails
to maintain the required records. These presumptions arise not
only when the taxpayer fails to maintain records at all but where
the records fail to establish the requisite facts.
Petitioner reported an ITC carryover of $64,291 for the 1992
taxable year. The ITC carryover was generated in the 1984-86
taxable years. Petitioner had substantial asset dispositions
between 1984 and 1992 but, with the exception of one automobile
sale in 1985, reported no ITC recapture. During respondent’s
examination, petitioner did not present adequate records or
schedules to support each of the assets sold and the basis of the
assets remaining which relate to the unused ITC. Because
petitioner did not present adequate records or schedules to
support the ITC carryover, respondent determined that no ITC was
available for carryover to 1992 or later years.
In support of its ITC claim, petitioner produced copies of
its 1984 through 1991 tax returns and a collection of schedules,
photographs, and invoices. Petitioner, however, made no attempt
to explain the schedules and invoices except to ask one of its
witnesses if “a lot of work” went into their preparation.
Respondent’s agent testified that an audit of an ITC issue
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