- 24 -
and are not subject to the various limitations on
deductions claimed under section 162. See Metra Chem Corp.
v. Commissioner, 88 T.C. 654, 661 (1987); B.C. Cook & Sons,
Inc. v. Commissioner, supra.
As to returns and allowances, a taxpayer is required
to maintain records that are sufficient to substantiate
the amount claimed on his or her return. Sec. 6001. A
taxpayer must establish a direct connection between an
expenditure claimed as an offset of gross receipts and the
activity giving rise to the gross receipt. See Max Sobel
Wholesale Liquors v. Commissioner, supra at 483 (rebate
treated as a reduction of gross income "where the rebate
was a part of the transaction of sale"); see also Shriver
v. Commissioner, 85 T.C. 1, 8 (1985).
As to deductions under section 162(a), a taxpayer
is required to maintain records that are sufficient to
substantiate the deductions claimed on his or her return.
Sec. 6001. Section 162 generally allows a deduction for
all the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on a trade or business.
Such expenses must be directly connected with or pertain to
the taxpayer's trade or business. Sec. 1.162-1(a), Income
Tax Regs. Petitioner bears the burden of proving his
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011