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1401 with a corresponding adjustment to gross income for one-half
of such tax under section 164(f)(1).
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.
As noted earlier, respondent's determinations disallowing
all or part of the deductions claimed on the return were for lack
of substantiation. Petitioners kept no books and records and
produced only minimal evidence at trial in support of some of
their deductions.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. The record does not show when the
examination of petitioners' returns commenced in this case;
however, because of the paucity of records and information
maintained by petitioners, the Court is satisfied that the burden
of proof in this case did not shift to respondent. Higbee v.
Commissioner, 116 T.C. 438 (2001).
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