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disregard of rules or regulations with respect to the TMI
expenses deduction. In Mr. Menard’s notice, respondent
determined that (1) Menards’s payment of the TMI expenses was a
payment to Mr. Menard, or for his benefit, and constituted a
constructive dividend to him; (2) Mr. Menard constructively
received interest income that accrued in 1998 on his loans to
Menards; and (3) Mr. Menard was liable for a section 6662(a)
accuracy-related penalty for negligence or disregard of rules or
regulations with respect to the TMI expenses constructive
dividend and the constructive receipt of interest income.
On January 9, 2002, Menards and Mr. Menard separately filed
timely petitions contesting respondent’s determinations. Mr.
Menard filed an amended petition on February 6, 2003.
OPINION
I. Burden of Proof
Generally, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proof. Rule
142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Deductions are a matter of legislative grace, and a taxpayer must
clearly demonstrate entitlement to the claimed deductions.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The
Commissioner bears the burden of proof with respect to increases
in deficiencies asserted in an amendment to answer. See Rule
142(a)(1).
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