Neal N. and Ruby W. Viar - Page 10

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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           

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