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1.446-1, Income Tax Regs.
According to the explanation contained in the notice of
deficiency, all of the deductions claimed on the Schedule C were
disallowed for lack of substantiation. It appears that
respondent now agrees, or at least does not dispute, that during
1993 petitioner paid the $10,000 fine imposed in connection with
his 1984 criminal tax conviction.6 Nevertheless, petitioner is
not entitled to a deduction for the payment of the fine because
“no deduction shall be allowed * * * for any fine or similar
penalty paid to a government for the violation of any law.” Sec.
162(f).
With respect to the other deductions claimed on the Schedule
C, we agree with respondent that petitioner has failed to provide
adequate substantiation that the underlying expenses have been
paid. At trial, petitioner presented a manila folder filled with
bundles of records from 1993. The bundles include assorted
photocopies of invoices, bills, statements, and receipts. There
is no spreadsheet or other document that explains how these
records correspond to the specific deductions claimed on the
Schedule C, and petitioner was unable to provide such an
explanation at trial. Many of the invoices, bills, statements,
6 According to petitioner, the $10,000 payment he made to
the Government was not a “fine”, but reimbursement to the United
States for the litigation costs incurred in connection with his
criminal tax conviction.
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