- 4 -
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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