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respondent, even if petitioners had offered evidence that the
form was mailed, we would be left with the conclusion that the
document was lost in transit. In such a case, it is the taxpayer
who bears the risk of nondelivery. Walden v. Commissioner 90
T.C. 947, 951-952 (1988); Smith v. Commissioner, T.C. Memo. 1994-
270, affd. without published opinion 81 F.3d 170 (9th Cir. 1996).
The Court holds that the preponderance of the evidence
supports respondent's determination that petitioners are not
entitled to deduct losses from an S corporation for 1997 and
1998.
Operation as a Proprietorship
Petitioners' primary argument is that the deductions claimed
on their returns as losses from an S corporation on Schedules E
should really have been reported as business expenses on
Schedules C. They argue that Cactus Quail was not a corporation
at all during the years at issue and that the bed and breakfast
expenses were therefore incurred by and are deductible by them
personally.
The Court will assume, without deciding, that petitioners
did operate as a proprietorship during 1997 and 1998 and would be
entitled to deduct business expenses on Schedules C. Deductions,
however, are a matter of legislative grace, and taxpayers bear
the burden of proving their entitlement to any deduction claimed.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
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