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Respondent used BLS statistics to calculate petitioners’ net
income for the 1996 tax year for the hairdressing activity
because petitioners’ records were inadequate. By relying on the
BLS statistics, respondent allowed petitioners’ deductions for
expenses based on industry statistics but did not rely on
petitioners’ actual and substantiated expenses. The examiner
testified that “The only thing I was provided with substantially
was a handful of checks for what was supposed to be expenses for
her for the business.” Petitioners did not provide the Court
with additional information to substantiate their expenses, such
as receipts or testimony.
Respondent’s use of the bank deposit analysis and BLS
statistics to reconstruct income for 1996 is reasonable.
Respondent’s determination in this regard is sustained.
3. Advertising Expenses
Generally, a taxpayer is allowed a deduction for ordinary
and necessary advertising expenses under section 162 and section
1.162-1, Income Tax Regs. Only those business expenses greater
than the amounts advanced or reimbursed by the employer are
deductible by the employee under section 162 and section 1.162-
17(b)(3) or (c), Income Tax Regs.
Petitioners claimed an advertising expense deduction for the
1995 tax year as an unreimbursed employee business expense
deduction. As indicated, respondent bears the burden of proof on
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