Kenneth B. and Linda R. Satlin - Page 8

                                        - 7 -                                         
          Petitioners did not seek to enforce their security interests on             
          the 3513 and the 3532 properties.                                           
                                     Discussion                                       
               Deductions are a matter of legislative grace, and a taxpayer           
          generally bears the burden of proving that he or she is entitled            
          to the deductions claimed.  See Rule 142(a); INDOPCO, Inc. v.               
          Commissioner, 503 U.S. 79 (1992); New Colonial Ice Co. v.                   
          Helvering, 292 U.S. 435 (1934).  The taxpayer is required to                
          maintain records that are sufficient to enable the Commissioner             
          to determine his or her correct tax liability.  See sec. 6001;              
          sec. 1.6001-1(a), Income Tax Regs.  In addition, the taxpayer               
          bears the burden of substantiating the amount and purpose of the            
          claimed deduction.  See Hradesky v. Commissioner, 65 T.C. 87, 90            
          (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).                      
               Generally, the Commissioner’s determinations set forth in a            
          notice of deficiency are presumed correct, and the taxpayer bears           
          the burden of showing that the determinations are in error.  Rule           
          142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).  Pursuant             
          to section 7491,7 the burden of proof as to factual matters                 
          shifts to the Commissioner under certain circumstances.                     


               7  Sec. 7491 applies to court proceedings arising in                   
          connection with examinations commencing after July 22, 1998.                
          Internal Revenue Service Restructuring and Reform Act of 1998,              
          Pub. L. 105-206, sec. 3001(c), 112 Stat. 727.  It appears that              
          the examination of petitioners’ 1997 tax return commenced after             
          the effective date of sec. 7491.                                            





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