Edward C. and Susan R. Hanna - Page 5

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          approximately 2,000 hours of work.  Mrs. Hanna worked as a                  
          computer consultant for three different companies, earning                  
          $123,270 for 2,119 hours of work.                                           
               Petitioners filed a joint 2000 Federal income tax return.              
          On Schedule E, Supplemental Income and Loss, petitioners reported           
          $46,210 of gross income from the rental activities, and $118,057            
          of expenses and depreciation, for a loss of $71,847.  Although              
          respondent did not adjust any of the Schedule E items of income,            
          expense or depreciation, he determined that the $71,847 loss was            
          a nondeductible passive activity loss.  Respondent also                     
          determined that petitioners were liable for an accuracy-related             
          penalty under section 6662(a).                                              
          Burden of Proof                                                             
               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.                                          

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