Perry H. Kay, Sr. - Page 5

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               The determinations of the Commissioner in a notice of                  
          deficiency are presumed correct, and the burden is on the                   
          taxpayer to show that the determinations are incorrect.  Rule               
          142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).2                      
               Deductions are a matter of legislative grace, and the                  
          taxpayer bears the burden of proving the entitlement to any                 
          deduction claimed.  INDOPCO, Inc. v. Commissioner, 503 U.S. 79,             
          84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440             
          (1934).  A taxpayer is required to maintain records sufficient to           
          establish the amount of his or her income and deductions.  Sec.             
          6001; sec. 1.6001-1(a), (e), Income Tax Regs.                               
          1.  Schedule C--Business Expense Deductions                                 
               Section 162(a) allows a taxpayer to deduct all ordinary and            
          necessary business expenses paid or incurred during the taxable             
          year in carrying on any trade or business.  To be “ordinary” the            
          transaction which gives rise to the expense must be of a common             
          or frequent occurrence in the type of business involved.  Deputy            
          v. Du Pont, 308 U.S. 488, 495 (1940).  To be “necessary” an                 
          expense must be “appropriate and helpful” to the taxpayer’s                 
          business.  Welch v. Helvering, supra at 113.   Additionally, the            

               2    Sec. 7491 does not apply in this case to place the                
          burden of proof on respondent because petitioner neither alleged            
          that sec. 7491 was applicable nor established that he fully                 
          complied with the substantiation requirements of sec.                       

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Last modified: May 25, 2011