- 7 -
1995 1996 1997 1998 1999 Total
Gross income $250 ($693) 1$243 $1,266 $443 $1,509
(loss)
Net loss ($13,770) ($12,997) ($14,906) ($11,049) ($8,437) ($61,159)
1 Petitioners stipulated a gross loss in 1997 in
the amount of $248, but reported gross income in the
amount of $243 on their 1997 return. The discrepancy
has not been explained.
Respondent disallowed the claimed Schedule C expense
deductions relating to the Amway activity because the activity
was not engaged in for profit and because petitioners failed to
substantiate the claimed expenses. Petitioners assert that they
operated the Amway activity as a business with the intent to earn
a profit.
Discussion
Deductions are a matter of legislative grace. INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992).1
Section 162 allows a deduction for all of the ordinary and
necessary expenses that are paid or incurred during the taxable
year in carrying on a trade or business. Sec. 162(a).
Alternatively, section 212 allows a deduction for all of the
ordinary and necessary expenses paid or incurred during the
1 The examination commenced after July 22, 1998;
accordingly, we considered the applicability of sec. 7491.
Petitioners did not assert, nor did they present evidence, that
they complied with the requirements of sec. 7491(a)(2)(A) and (B)
to substantiate items, maintain required records, and fully
cooperate with respondent’s reasonable requests. Accordingly,
the burden of proof remains with petitioners.
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