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finding that the distributions in issue were constructive
dividends. See DiLeo v. Commissioner, supra at 888.
We hold that respondent has proven by clear and convincing
evidence that petitioner received constructive dividends from the
numerous corporate receipts and fictitious checks that he
diverted for personal use.
II. Deductions
In the notice of deficiency, respondent disallowed some of
the deductions petitioner claimed. Petitioner contends that he
and Ms. McNamara paid the expenses claimed on their Federal
income tax returns during the years in issue.
Section 162(a) allows a deduction for all “ordinary and
necessary expenses paid or incurred” to carry out a trade or
business in the taxable year. Section 162(a)(1) specifically
provides for “a reasonable allowance for salaries or other
compensation for personal services actually rendered”. Taxpayers
must maintain records that verify the amounts of deductions
claimed on their returns. Sec. 6001; Baratelle v. Commissioner,
T.C. Memo. 2000-359. Taxpayers bear the burden of proving that
the amounts disallowed by the Commissioner constitute allowable
deductions. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
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