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A. Schedule C Deductions
Section 162(a) allows a taxpayer deductions for ordinary and
necessary business expenses incurred during the taxable year in
carrying on a trade or business. Deductions, however, are a
matter of legislative grace, and the taxpayer bears the burden of
proving the entitlement to any deductions claimed. See INDOPCO,
Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Generally, a
taxpayer must establish that deductions taken pursuant to section
162 are ordinary and necessary business expenses and must
maintain records sufficient to substantiate the amounts of the
deductions claimed. Sec. 1.6001-1(a), Income Tax Regs.
With respect to certain business expenses specified in
section 274(d), however, more stringent substantiation
requirements apply. Section 274(d) disallows deductions for
traveling expenses, gifts, and meals and entertainment, as well
as for “listed property”, unless the taxpayer substantiates by
adequate records or by sufficient evidence corroborating the
taxpayer’s own statement: (1) The amount of the expenses; (2)
the time and place of the expense; (3) the business purpose of
the expense; and (4) the business relationship to the taxpayer of
the persons involved in the expense. The term “listed property”
is defined in section 280F(d) and includes cellular phones. See
sec. 280F(d)(4)(v).
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Last modified: May 25, 2011