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certain circumstances, however, if the taxpayer introduces
credible evidence and establishes that he or she substantiated
items, maintained required records, and fully cooperated with the
Commissioner’s reasonable requests. Sec. 7491(a)(2)(A) and (B).6
The burden does not shift to respondent under section 7491,
however, because we find that petitioner failed to provide
credible evidence, failed to substantiate the claimed expenses,
and failed to maintain adequate records. The burden therefore
remains with petitioner.
Moreover, deductions are a matter of legislative grace, and
the taxpayer bears the burden of proving that he or she is
entitled to any deduction claimed. Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). A taxpayer is generally
permitted to deduct all ordinary and necessary expenses paid or
incurred in carrying on a trade or business. See sec. 162(a).
In contrast, no deduction is allowed for personal, living, or
family expenses. See sec. 262.
Substantiation Requirement
A taxpayer must substantiate amounts claimed as deductions
by maintaining the records necessary to establish that he or she
6Sec. 7491 is effective with respect to court proceedings
arising in connection with examinations by the Commissioner
commencing after July 22, 1998, the date of enactment of the
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001(a), 112 Stat. 726.
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Last modified: May 25, 2011