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See Rule 142(a);7 INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934); Welch v. Helvering, 290 U.S. 111, 115 (1933); Page v.
Commissioner, 823 F.2d 1263, 1271 (8th Cir. 1987), affg. in part
and dismissing in part T.C. Memo. 1986-275.
Section 162(a) requires a taxpayer to prove that the
expenses deducted (1) were paid or incurred during the taxable
year, (2) were incurred to carry on the taxpayer’s trade or
business, and (3) were ordinary and necessary expenditures of the
business. See sec. 162(a); Commissioner v. Lincoln Sav. & Loan
Association, 403 U.S. 345, 352 (1971). An expense is ordinary if
it is customary or usual within a particular trade, business, or
industry or relates to a transaction “of common or frequent
occurrence in the type of business involved.” Deputy v. du Pont,
308 U.S. 488, 495 (1940). An expense is necessary if it is
appropriate and helpful for the development of the business. See
Commissioner v. Heininger, 320 U.S. 467, 471 (1943). Personal,
living, or family expenses, on the other hand, generally are not
deductible. See sec. 262(a).
A taxpayer is required to keep adequate records sufficient
to enable the Commissioner to determine the taxpayer’s correct
7Contrary to petitioners’ assumption, the burden of proof
provisions of sec. 7491 do not apply here because the examination
in this case began before July 22, 1998. See Internal Revenue
Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec.
3001, 112 Stat. 726.
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