Robert J. & Shari L. Hartz - Page 7




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          subject to a concession by respondent,3 sustain respondent’s                
          determination with respect to the 1995 and 1996 unreported                  
          income.                                                                     
          Business Expense Deductions                                                 
               With respect to petitioner’s sole proprietorship,                      
          petitioners claimed the following deductions and respondent                 
          disallowed the respective portions thereof:                                 
          1995                1996                1997                                
          Claimed Disallowed  Claimed Disallowed  Claimed Disallowed                  
          Travel                 $6,591      $959   $26,811    $2,420                 
          Legal fees                                  5,675     5,765   $21,240   $21,240
          Depreciation                               16,604     2,420    23,420     2,256
          Car and truck           6,116     3,054    17,615     6,627    24,267     4,853
          Rent                                        4,569     2,188                 
          Contract labor/wages                       75,662    11,266                 
               While a taxpayer generally may deduct expenses incurred in             
          conducting a trade or business, a taxpayer may not deduct                   
          personal, family, or living expenses.  Secs. 162(a), 262(a).                
          Moreover, a taxpayer generally must keep records sufficient to              
          establish the amounts of the items reported on his Federal income           
          tax return.  Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.             
          In the event that a taxpayer establishes that a deductible                  
          expense has been paid but is unable to substantiate the precise             
          amount, we generally may estimate the amount of the deductible              
          expense bearing heavily against the taxpayer whose inexactitude             
          in substantiating the amount of the expense is of his own making.           


          3Respondent concedes in the parties’ stipulation that the                   
          correct amount of business gross income in 1995 is $152,012.  We            
          accordingly find that petitioner had unreported business income             
          of $11,453 in that year.                                                    




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