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Respondent argues that petitioners failed to substantiate
the expenses deducted in excess of the amount allowed by
respondent.22 Petitioners argue that: (1) The notice of
deficiency and respondent’s court papers do not provide
petitioners with notice of which expenses were denied, and (2)
petitioners have sufficiently substantiated the deduction of
expenses claimed. For the reasons detailed below, we believe
petitioners failed to carry their burden.
Petitioner testified that he received payments for, inter
alia, consulting services performed on behalf of CPSG Ventures.23
Assuming this to be true, we find that petitioners have not
proven entitlement to the disallowed deductions. We do not find
petitioners’ argument that respondent failed to identify which
deductions were denied persuasive. Respondent allowed
petitioners to deduct expenses to the extent that they received
reimbursement from CPSG, Inc. Petitioners are in the unique
position to know those expenses for which they received
22Respondent permitted deductions for reimbursed employee
expenses to the extent such reimbursements were included in
petitioners’ Schedules C gross receipts for the years at issue.
The amounts reimbursed by CPSG, Inc. were $61,640 and $53,618 for
1994 and 1996, respectively.
23For example, on their 1994 return, petitioners reported
$194,317 in gross receipts for CPSG Ventures on which petitioners
claimed an expense deduction of $79,881, leaving a net profit of
$114,436. From the $79,881 in expenses claimed, respondent
allowed $61,640 as a deduction, an amount equal to that which
petitioners included in gross income as reimbursements received
from CPSG, Inc.
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