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Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are a
matter of legislative grace, and the taxpayer generally bears the
burden of proving entitlement to such claimed deductions.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Furthermore, a taxpayer is required to maintain records
sufficient to establish the amount of his income and deductions.
Secs. 274(d), 6001; sec. 1.6001-1(a), (e), Income Tax Regs.
A. Section 174--Research and Development Deductions
With regard to the claimed research and development (R&D)
expenses for 1995 and 1996, the notice of deficiency states:
Schedule C - DMS Loss
Year 9512 9612
Claimed on return $67,534 $1,421,645
Allowed per audit -0- -0-
Adjustment 67,534 1,421,645
You have not shown that these expenses were
ordinary and necessary expenses paid or incurred
in connection with carrying on a trade of
business.
Since you have not established that the expenses
claimed were paid or incurred for research and
experimental expenditures in connection with your
trade or business, they are not deductible.
Loss is limited to amount of capital you have at
risk.
13(...continued)
the returns at issue commenced before the statute’s effective
date.
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