Everett J. Diers - Page 8

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          his departure from American were credited to his account,                   
          however, petitioner’s obligation to repay the loans was reduced             
          by those amounts, and the reduction of that obligation                      
          constituted the receipt of taxable income.  See Newmark v.                  
          Commissioner, 311 F.2d 913, 915 (2d Cir. 1962), affg. T.C. Memo.            
          1961-285.  On the basis of the foregoing, we find that petitioner           
          failed to report commission income in the amount determined by              
          B.   Schedule C Expenses                                                    
               Deductions are a matter of legislative grace, and the                  
          taxpayer has the burden of showing that he is entitled to any               
          deduction claimed.  Rule 142(a); New Colonial Ice Co. v.                    
          Helvering, 292 U.S. 435, 440 (1934).  During 1996, petitioner               
          continued his business as an insurance agent.  Petitioner,                  
          however, failed to maintain adequate records to substantiate                
          claimed deductions for his automobile and home office expenses.             
               1.   Automobile Expenses                                               
               Section 162(a) allows a taxpayer to deduct all ordinary and            
          necessary expenses paid or incurred in carrying on a trade or               
          business.  Under section 274(d), however, automobile expenses are           
          not deductible as a business expense and will be disallowed in              
          full unless the taxpayer satisfies strict substantiation                    

               5 Although the amount determined by respondent includes Form           
          1099 income from Capitol and Life USA, petitioner concedes this             
          point, and therefore the issue merits no further discussion.                

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