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for the 1995 taxable year. Although petitioners deducted the
business loss on line 12 of the return as a Schedule C loss, they
did not attach a Schedule C, Profit or Loss From Business, to the
return.
The notice of deficiency determined that petitioners were
not entitled to the claimed loss deduction.2 The notice of
deficiency further determined the following:
[The nonbusiness bad debt] can be deducted as a short-term
capital loss. Capital losses are deductible only to the
extent of capital gains plus $3,000 * * *. We have adjusted
your loss accordingly, and you may carry any unused loss
forward to future years. Accordingly, your taxable income
is increased $35,000 for tax year 1995.
Generally, the burden of proof is on the taxpayer. Rule
142(a)(1). The burden of proof may shift to the Commissioner
under section 7491 if the taxpayer establishes that he complied
with the requirements of section 7491(a)(2)(A) and (B) to
substantiate items, maintain required records, and fully
cooperate with the Secretary’s reasonable requests. Section 7491
is effective with respect to court proceedings arising in
connection with examinations by the Commissioner commencing after
July 22, 1998, the date of its enactment by section 3001(a) of
the Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, 112 Stat. 685, 726.
2 The adjustment resulted in a net decrease in petitioners’
income of $32,000.
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