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B. 1998-2001
Petitioner argues his business expenses for 1998, 1999,
2000, and 2001 were properly substantiated solely by his
testimony. The Court disagrees.
Under section 162(a), a taxpayer may deduct ordinary and
necessary business expenses incurred or paid during the taxable
year. However, deductions are a matter of legislative grace, and
the taxpayer must clearly demonstrate entitlement to the claimed
deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992). The taxpayer must keep records sufficient to establish
the amount of his deductions. Secs. 162(a), 6001; sec.
1.6001-1(a), Income Tax Regs. The taxpayer bears the burden of
substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),
affd. per curiam 540 F.2d 821 (5th Cir. 1976).
Petitioner testified all substantiating documents were
either destroyed in “hard disk crashes” or lost while moving.
When a taxpayer’s records have been destroyed or lost due to
circumstances beyond the taxpayer’s control, such as fire, flood,
earthquake, or other casualty, the taxpayer has a right to
substantiate the deductions by a reasonable reconstruction of the
expenditures or uses. Sec. 1.274-5T(c)(5), Temporary Income Tax
Regs., 50 Fed. Reg. 46022 (Nov. 6, 1985). If documentation is
unavailable, the Court may, although it is not required to do so,
accept the taxpayer’s testimony to substantiate the deduction.
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