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Sams, Inc. reported income and claimed deductions on its
Form 1120S for its 1996 tax year as follows:
Income
Gross receipts $37,828
Deductions
Repairs and maintenance 2,257
Interest 20,010
Advertising 975
Other deductions 112,624
Total income 21,962
1 The other claimed deductions are as follows: Accounting
($300), dues and subscriptions ($1,118), gifts ($333), insurance
($906), legal and professional ($644), outside services ($3,165),
supplies ($1,472), telephone ($867), utilities ($3,539), and
communications ($280).
2 The income of $1,962 flowed through to petitioner
individually as reflected on a Sch. K-1 issued to her by Sams,
Inc.
Discussion
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 compliance with
the requirements of section 7491(a)(2)(A) and (B) by
substantiating items, maintaining required records, and fully
cooperating 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
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