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allowed by respondent in the notice of deficiency. Petitioners
bear the burden of proof on this issue. Rule 142; Welch v.
Helvering, 290 U.S. 111, 115 (1933).4
In general, deductions are a matter of legislative grace.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Taxpayers
are required to maintain records sufficient to enable the
Commissioner to determine their correct tax liability. Sec.
6001; Higbee v. Commissioner, 116 T.C. 438 (2001); sec. 1.6001-
1(a), Income Tax Regs. Such records must substantiate both the
amount and purpose of the claimed deductions. Higbee v.
Commissioner, supra.
Section 162 allows a deduction for ordinary and necessary
expenses that are paid or incurred during the taxable year in
carrying on a trade of business. Sec. 162(a); Deputy v. Dupont,
308 U.S. 488, 495 (1940). In the case of travel expenses and
certain other expenses, such as entertainment, gifts, and
expenses relating to the use of listed properties, including
4 Because of the years involved, the examination of
petitioners’ returns at issue commenced after July 22, 1998.
Therefore, sec. 7491, which under certain circumstances shifts
the burden of proof to the Commissioner, applies. However, for
the burden to be placed on the Commissioner on this issue, the
taxpayer must comply with the substantiation and record keeping
requirements of the Internal Revenue Code. Sec. 7491(a)(2)(A)
and (B). On this record, petitioners have not wholly satisfied
that requirement; therefore, the burden has not shifted to
respondent under sec. 7491. Higbee v. Commissioner, 116 T.C. 438
(2001).
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