George W. Warren and Florence J. Winterheld - Page 5

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                    Since you did not establish that the business                     
               expense shown on your tax return was paid or incurred                  
               during the taxable year and that the expense was                       
               ordinary and necessary to your business, we have                       
               disallowed the amount shown.                                           
          Respondent issued a supplemental report for the notice of                   
          deficiency but continued to disallow this deduction in full.                
               Deductions are a matter of legislative grace, and                      
          petitioners have the burden of showing that they are entitled to            
          any deduction claimed.7  Rule 142(a); New Colonial Ice Co. v.               
          Helvering, 292 U.S. 435, 440 (1934).                                        
               Section 162(a) allows a deduction for all ordinary and                 
          necessary expenses incurred in carrying on a trade or business.             
          Although this section does not explicitly mention expenditures              
          for education, the regulations provide an objective test for                
          determining whether such expenditures are deductible.8  Diaz v.             
          Commissioner, 70 T.C. 1067, 1072-1073 (1978).  Education expenses           
          are considered ordinary and necessary business expenses if the              
          education maintains or improves skills required by the taxpayer             
          in his employment or meets the express requirements of an                   

               7  The parties do not argue that sec. 7491(a) is applicable.           
               8  The education expense regulation here relevant was                  
          promulgated in 1967.  It replaced a regulation that had been                
          promulgated in 1958.  The 1958 regulation embodied a subjective             
          “primary purpose” test.  The 1967 regulation replaced this with             
          an objective test, in particular, the qualification-for-a-new-              
          trade-or-business test embodied in sec. 1.162-5(b)(3), Income Tax           
          Regs.  Taubman v. Commissioner, 60 T.C. 814, 817-819 (1973).                

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