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what business property was leased or rented, or what items were
being depreciated. Mr. Sowards did not call Ms. Nunn, the
alleged bailee of petitioners’ financial records, as a witness in
this matter. Furthermore, we disagree with Mr. Sowards’s
contention that “no disallowed deduction is subject to the
substantiation requirements of section 274(d)”. In fact, in 1995
and 1996, petitioners claimed depreciation deductions for
computer equipment. Computer equipment is a “listed property”
under section 280F(d)(4). Here, however, Mr. Sowards does not
present a scintilla of evidence that the claimed expenses were in
fact incurred. On this record, we sustain respondent’s
disallowance of all deductions claimed as stated in the notices
of deficiency.
D. Fraud Penalties
Respondent determined fraud penalties for the taxable years
1996 and 1997. Respondent applied the fraud penalties to the
unreported income deposited into the WPA account and the
unreported income deposited into Mr. Sowards’s law practice
account. The Commissioner bears the burden of proving by clear
and convincing evidence that an “underpayment exists for the
years in issue and that some portion of the underpayment is due
to fraud.” Sec. 7454(a); Rule 142(b); Niedringhaus v.
Commissioner, 99 T.C. at 210; Temple v. Commissioner, T.C. Memo.
2000-337, affd. 62 Fed. Appx. 605 (6th Cir. 2003).
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