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business expense relating to petitioner’s real estate investment
business.
Respondent argues that petitioner was not involved in any
business activity with petitioner’s father during 1996, and
therefore the $30,000 paid to petitioner’s father was not for the
purpose of carrying on a trade or business under section 162.
Respondent further argues that the $30,000 was in actuality a
redistribution of tax liability. Petitioner’s father already had
a Schedule C loss of $26,085 from his 7-Eleven store to offset
the $30,000 while petitioner was able to gain a tax liability
reduction of $9,717 by claiming a $30,000 expense against his
total wages of $127,039. We agree with respondent.
We note that a “deduction is a matter of legislative grace
and that the burden of clearly showing the right to the claimed
deduction is on the taxpayer.”3 INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992); Rule 142(a). Therefore, petitioner must
establish that the $30,000 paid to petitioner’s father was for
the purpose of carrying on petitioner’s trade or business.
Taxpayers are required to keep such permanent records as are
sufficient to substantiate the amount and the purpose of any
deductions. Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440
(2001); sec. 1.6001-1(a), Income Tax Regs. Petitioner did not
3 Petitioner does not contend that sec. 7491(a) is
applicable to this case.
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