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In addition to the rent and utilities expenses, petitioners
deducted expenses for furnishing the North Indian Avenue and
Ravenspur apartments during 1998 totaling $1,371. In the notice
of deficiency, respondent disallowed the $1,371 on the ground
that, although substantiated, the claimed amount did not
constitute deductible ordinary and necessary business expenses.
The Court first addresses petitioners’ entitlement to the
deductions claimed for 1997 and 1998 relating to their residences
(Vista Loma and Deepak) and next considers the deductions claimed
for 1998 relating to the two rented apartments (North Indian
Avenue and Ravenspur).5
Under section 162(a), a taxpayer is allowed to deduct all
ordinary and necessary expenses paid or incurred in carrying on a
trade or business. However, section 280A(a) generally disallows
deductions with respect to the use of a dwelling unit that is
used by a taxpayer as a residence during the taxable year, with
certain exceptions. One of those exceptions applies to use of a
home office. The home office exception, sec. 280A(c), provides:
5 Generally, the burden of proof is on a taxpayer to
establish entitlement to deductions, which are a matter of
legislative grace. New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934). In certain circumstances, however, sec. 7491
shifts this burden of proof with respect to examinations of
returns commencing after July 22, 1998. There is no evidence in
the record regarding the date the examination of petitioners’
returns commenced, and petitioners do not contend that sec. 7491
applies. In any event, the Court decides this case without
regard to the burden of proof.
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