Frederick M. and Cheryl A. Prouty - Page 10

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          their transfer to Appeals request indicates that petitioners feel           
          that respondent's position on the adjustment was not reasonable             
          in fact based upon their statements to respondent.                          
               As to that argument, respondent asserts that it was                    
          incumbent upon petitioners to substantiate their entitlement to             
          the items claimed.  It is reasonable, according to respondent,              
          not to concede an adjustment until he has received and verified             
          adequate substantiation for the items in question.  He therefore            
          concludes that as to the stated adjustment, his position was                
          reasonable when taken and appropriately conceded when                       
          substantiation was provided to Appeals.                                     
               Taxpayers are required to maintain books and records in                
          accordance with rules and regulations prescribed by the Secretary           
          of the Treasury.  See sec. 6001.  Generally, taxpayers must keep            
          records sufficient to establish gross income, deductions, or                
          other matters required to be shown on the return.  See sec.                 
          1.6001-1(a), Income Tax Regs.                                               
               Petitioners' request for transfer to Appeals argues that the           
          Code does not require an employer to indicate that an employee is           
          a statutory employee and that petitioners sent the Commissioner a           
          letter describing petitioner's duties.  Regardless of what                  
          responsibility petitioner's employers may have had, it was                  
          petitioner's responsibility to verify her entitlement to report             
          income and deductions on Schedule C.  The Forms W-2 attached to             

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