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Discussion
Generally, respondent's determinations are presumed correct,
and petitioners bear the burden of proving otherwise. Welch v.
Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a
matter of legislative grace, and petitioners bear the burden of
proving that they are entitled to any deduction claimed. New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v.
Helvering, supra at 115. This includes the burden of
substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),
affd. per curiam 540 F.2d 821 (5th Cir. 1976).
In some cases, however, the burden of proof may shift to the
Commissioner under section 7491(a). Because petitioners failed
to comply with the requirements of section 7491(a), section 7491
does not place the burden of proof on respondent with respect to
the claimed deductions. Under section 7491(c), respondent has
the burden of production only with respect to petitioner's
liability for the addition to tax.
Section 162(a) allows a deduction for all ordinary and
necessary expenses incurred in carrying on a trade or business.
Section 212 provides a deduction for all ordinary and necessary
expenses paid or incurred with respect to management,
conservation, and maintenance of property held for production of
income, including real property. Sec. 1.212-1(h), Income Tax
Regs. Generally, a taxpayer must establish that deductions
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