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the results of her law practice using a formal bookkeeping
system. Instead, petitioner entered business receipts (client
payments) in handwritten ledger books. On occasion, petitioner
also entered nonbusiness receipts (receipts other than client
payments) in the ledger books. Petitioner also retained deposit
slips reflecting the deposit of client payments into various bank
accounts.
In support of her Schedule C deductions, petitioner retained
canceled checks and other bank records, cash receipts, invoices,
credit card statements, credit card receipts, and other pertinent
documents. Petitioner’s practice was to make a notation (e.g.,
the client’s name) on a canceled check that would explain the
purpose of the check. Thus, later she would be able to determine
whether it represented a deductible expense of her law practice.
Petitioner numerically coded certain of the canceled checks and
many of her business-related cash and credit card receipts and
statements. Each number represented a specific type of expense
(e.g., 1 for client entertainment, 5 for office expenses, etc.).
Petitioner divided the checks and cash receipts by type or
category of expense, placed them in separate envelopes, and
submitted the envelopes to her husband’s accountant, John R.
Aunan (Mr. Aunan), for his use in preparing the tax returns for
the years at issue.
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