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expenses incurred in carrying on a trade or business during the
taxable year. The question of whether an expenditure satisfies
the requirements of section 162 is one of fact. Commissioner v.
Heininger, 320 U.S. 467 (1943). Section 274(d) provides guidance
with respect to certain deductions. Specifically, it sets forth
technical rules for substantiation of expenses relating to travel
and meals.
Deductions are a matter of legislative grace, and a taxpayer
bears the burden of proving that he or she is entitled to any
deductions claimed.2 Rule 142(a); INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992). Accordingly, petitioner must show that
she incurred and/or paid the expense as an ordinary and necessary
expense of her business. For expenses covered under section
274(d), petitioner must produce (1) adequate records or (2)
sufficient evidence to corroborate her own statements. Sec.
1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016
(Nov. 6, 1985). Adequate records include such things as an
account book, diary, log, statement of expense, or other similar
record in which entries of expenses are recorded at or near the
time of the expense. Id. In addition, petitioner must produce
documentary evidence such as receipts or paid bills. Sec. 1.274-
2 Because the examination commenced prior to July 22, 1998,
sec. 7491 burden of proof and production standards are not
applicable. See sec. 7491.
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Last modified: May 25, 2011