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1999 and 2000 income tax returns as married filing jointly using
the cash method of accounting.
During 1999 and 2000, petitioner operated a vending machine
business, State of the Art Vending. Petitioner purchased this
business in 1999, acquiring vending machines and a clientele
list. During 1999 and 2000, State of the Art Vending serviced 10
clients.
On his Schedule C, Profit or Loss From Business, for taxable
years 1999 and 2000, petitioner deducted labor expenses of $8,400
in each year, which consisted of $4,200 paid to each of his two
minor children. In the statutory notice, respondent disallowed
the amounts paid to his children after determining that the
amounts were not ordinary and necessary expenses paid or incurred
in a trade or business.
Discussion
As a general rule, the determinations of the Commissioner in
a notice of deficiency are presumed correct, and the taxpayer
bears the burden of proving the Commissioner’s determinations in
the notice of deficiency to be in error. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). Section 7491(a) shifts the
burden of proof to the Commissioner under certain circumstances.
The burden does not shift with respect to any factual issue
relating to petitioners’ liability for the income tax
deficiencies because petitioners neither alleged that section
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Last modified: May 25, 2011