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unreported income of $12,815 ($19,715 x 65 percent).4
Advertising Expense Deduction for 1995
The examiner allowed the claimed advertising expense
deduction of $29,585 in full for 1995. The examiner compared Mr.
Possas’s wages in 1996 ($92,657.87) to his advertising expenses
in 1996 ($22,227), and applied this ratio to Mr. Possas’s wages
in 1995 ($108,867.57).
Respondent had not questioned the advertising expense
deduction for 1995 before trial, and until the morning of trial,
petitioners had not produced records substantiating the expense.
At trial, respondent claimed that petitioners were not allowed
$24,429 of the claimed expense deduction.
Discussion
1. Burden of Proof
Generally the taxpayer bears the burden of proof. Rule
142(a)(1). If the Commissioner raises an issue that was not
raised in the notice of deficiency, the Commissioner bears the
burden of proof with respect to that issue. Id.
When the Commissioner determines that a taxpayer received
unreported income, the taxpayer bears the burden of proof if the
determination in the notice of deficiency is “supported by ‘some
4 Respondent reconstructed petitioners’ 1995 omitted income
using the unexplained deposits for 1996. As indicated,
respondent conceded this adjustment for the 1995 tax year before
trial.
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Last modified: May 25, 2011