Michael Robert Cottrell - Page 5

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          in his petition that he sustained capital losses in prior years             
          that would offset his net income during 2000.  In his testimony,            
          petitioner acknowledged that, during 2000, he received other                
          payments for services performed in his business activity, as to             
          which no information returns were filed by such payers with the             
          Internal Revenue Service.  These additional payments were not               
          included as income on petitioner's 2000 income tax return.                  
          Petitioner did not indicate in his testimony the amounts of                 
          these additional payments, nor did respondent pursue the matter.            
               Deductions are a matter of legislative grace.  INDOPCO,                
          Inc. v. Commissioner, 503 U.S. 79, 84 (1992).  The taxpayer                 
          bears the burden of proof, which means the presentation of                  
          adequate documentation to support the deductions claimed on tax             
          returns.  Rule 142; Welch v. Helvering, 290 U.S. 111, 115                   
          (1933).   It is also the taxpayer's responsibility to maintain              
          records sufficient to enable the Commissioner to determine the              
          correct tax liability.  Sec. 6001; Higbee v. Commissioner, 116              
          T.C. 438 (2001); sec. 1.6001-1(a), Income Tax Regs.  The                    
          taxpayer must substantiate both the amount and purpose of the               
          claimed deductions.  Higbee v. Commissioner, supra.2                        

               2    Sec. 7491, under certain circumstances, places the                
          burden of proof on the Commissioner in connection with                      
          proceedings arising from the examination of returns that                    
          commenced after July 22, 1998.  Although it is obvious that                 
          petitioner's 2000 return was examined after July 22, 1998, the              
          applicability of sec. 7491 in shifting the burden to the                    
                                                             (continued...)           




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