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California, (Mullen Avenue), reported a basis of $146,457, and
claimed a net loss of $1,457.
Respondent disallowed $4,000 of the automobile expense,
disallowed $3,675 of the rent expense, and determined that
petitioners had a capital gain of $105,427 on the sale of the
Mullen Avenue property.
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(a) does not change the burden
of proof where taxpayers have failed to substantiate their
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); sec. 1.6001-1(a), Income Tax Regs. Generally,
except as otherwise provided by section 274(d), when evidence
shows that a taxpayer incurred a deductible expense, but the
exact amount cannot be determined, the Court may approximate the
amount, bearing heavily if it chooses against the taxpayer whose
inexactitude is of his own making. Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930). The Court, however, must have
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