Rosiland J. Smith - Page 9




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          as of that date.  Therefore, we find that the statute of                    
          limitations period expired on April 18, 2000.  We hold that the             
          statute of limitations does not bar assessment of the deficiency            
          determined in the statutory notice sent to petitioner on December           
          28, 1999.                                                                   
               We now address the remaining issues.  Respondent disallowed            
          the deduction of $36,167 of Schedule C expenses.  Petitioner                
          presented no testimony or other evidence regarding these                    
          deductions.  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 petitioner has failed to substantiate her                    
          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.  Because                
          petitioner presented no substantiation, we sustain respondent's             
          determination as to the disallowance of the deduction of $36,167            
          of Schedule C expenses.                                                     
               Under section 7491(c), respondent has the burden of                    
          production in any court proceeding with respect to the liability            





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