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Discussion
In general, a taxpayer bears the burden of proving his
entitlement to a business expense deduction. Rule 142(a); Welch
v. Helvering, 290 U.S. 111, 115 (1933); Burrus v. Commissioner,
T.C. Memo. 2003-285. Section 7491(a) provides that the burden of
proof shifts to respondent under certain specified conditions.
Petitioners have not established that the burden of proof has
shifted, and in any event the resolution of this case does not
depend upon the burden of proof.
The deductibility of a taxpayer’s expenses attributable to
an income-producing activity depends upon whether that activity
was engaged in for profit. See secs. 162, 183, 212. Section 162
provides that a taxpayer who is carrying on a trade or business
may deduct ordinary and necessary expenses incurred in connection
with the operation of the business. Section 212 provides a
deduction for expenses paid or incurred in connection with an
activity engaged in for the production or collection of income,
or for the management, conservation, or maintenance of property
held for the production of income. Section 183 specifically
precludes deductions for activities “not engaged in for profit”
except to the extent of the gross income derived from such
activities. Sec. 183(a) and (b)(2).
For a taxpayer’s expenses in an activity to be deductible
under section 162 or section 212, and not subject to the
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Last modified: May 25, 2011