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Petitioner is an attorney practicing in the areas of
business law, trusts, estates, and technology. He was admitted
to the California State Bar in 1973. Petitioner operated a law
practice with one office in San Diego and one in Orange County.
On his Schedule C for 1995, petitioner reported $144,787 in gross
income from his law practice and deducted expenses of $83,466.
Respondent disallowed $30,279 of petitioner’s Schedule C
deductions because petitioner did not substantiate these
deductions. The amount disallowed consists of $4,633 for meals
and entertainment, $6,533 for travel, and $19,113 for interest.
At trial respondent asserted that the meals and entertainment and
travel expense deductions were disallowed because petitioner
allegedly did not maintain a contemporaneous business record
showing a business purpose and because he deducted in 1995 some
expenses charged on a credit card in 1994 but paid in 1995.
Deductions are strictly a matter of legislative grace.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Taxpayers must substantiate claimed deductions. Hradesky v.
Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d
821 (5th Cir. 1976). Section 7491 does not change the burden of
proof where a taxpayer has failed to substantiate deductions.
Higbee v. Commissioner, 116 T.C. 438 (2001). Moreover, taxpayers
must keep sufficient records to establish the amounts of the
deductions. Meneguzzo v. Commissioner, 43 T.C. 824, 831 (1965);
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