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2. Charitable Contributions
Section 162(a) allows the deduction of all ordinary and
necessary expenses paid or incurred during a taxable year in
carrying on a trade or business. Construing that section, the
Supreme Court explained in Commissioner v. Lincoln Sav. & Loan
Association, 403 U.S. 345, 352-353 (1971), that a cash basis
taxpayer such as Mr. Gage may deduct an expenditure if it is:
(1) An expense, (2) an ordinary expense, (3) a necessary expense,
(4) paid during the taxable year, and (5) made to carry on a
trade or business. Accord Lychuk v. Commissioner, 116 T.C. 374,
386 (2001).
Deductions are a matter of legislative grace, and an
individual taxpayer bears the burden of proving that he or she is
entitled to the deductions claimed.5 Rule 142(a)(1); INDOPCO,
Inc. v. Commissioner, 503 U.S. 79 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435 (1934). Payments which qualify as
charitable contribution deductions under section 170 are not
deductible as ordinary and necessary business expenses under
section 162 if they fail to qualify as legitimate business
5 Sec. 7491 was added to the Code by the Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3001(c), 112 Stat. 727, effective for court proceedings
arising from examinations commencing after July 22, 1998. Sec.
7491(a) provides that the burden of proof shifts to the
Commissioner in specified circumstances. Petitioners make no
argument that sec. 7491 applies to this case. Accordingly, we
conclude it does not.
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