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the notice of deficiency to be in error. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). As one exception to this
rule, section 7491(a) places upon the Commissioner the burden of
proof with respect to any factual issue relating to liability for
tax if the examination of the taxpayer’s records for the subject
year began after July 22, 1998, and the taxpayer maintained
adequate records, satisfied the substantiation requirements,
cooperated with the Commissioner, and introduced during the Court
proceeding credible evidence with respect to the factual issue.
In the present case, the burden does not shift with respect to
any factual issue relating to petitioner’s liability for the
income tax deficiency because petitioner neither alleged that
section 7491 was applicable nor established that he complied with
the substantiation requirements of section 7491(a), as shown
below. Sec. 7491(a)(2)(A) and (B).
Deductions are a matter of legislative grace, are allowed
only as specifically provided by statute, and petitioner bears
the burden of proving that he is entitled to the claimed
deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). With these well-established propositions in mind, we
must determine whether petitioner has satisfied his burden of
proving that he is entitled to a casualty loss deduction
allegedly incurred during taxable year 2001. Respondent argues
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