- 10 -
expenses were ordinary business expenses or constructive
dividends because of the inadequacy of the record, we could find
that the expenses were for the benefit of the taxpayer. Halpern
v. Commissioner, supra; Donnelly v. Commissioner, supra.
It is well established that taxpayers must keep permanent
records sufficient to establish gross income, deductions, or
other matters required to be shown on the return. Sec. 6001;
sec. 1.6001-1(a), Income Tax Regs. In this case petitioner took
the records of The Fourth Dreamer and would not give them to
respondent, even after respondent made requests and filed two
summonses. While petitioner contends that he offered to give the
records to respondent, the offers to provide the records were
contingent on petitioner’s receiving information that respondent
believed petitioner was not allowed to receive under section
6103(a).
Because The Fourth Dreamer could not substantiate the
expenses as ordinary and necessary business expenses, respondent
was justified in contending that the expenses were not made for
business purposes. Donnelly v. Commissioner, supra. It was not
unreasonable for respondent to determine that if the expenditures
were not for business purposes, then the expenditures probably
inured to the benefit of the two shareholders equally.
Respondent based that determination on the general principle that
a taxpayer who fails to produce evidence within his possession
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011