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trial, petitioner presented documentary evidence, by category, of
a portion of his claimed 1997 expenses. Moreover, the examining
agent’s 1997 Explanation of Items treats as either deductible on
Schedule A, capitalizable, or nondeductible “personal or estate
expenses” all but $8,292 of petitioner’s total 1997 Schedule C
expenses, which indicates that petitioner substantiated all but
$8,292 of those expenses during the audit.
Petitioner claimed 1997 Schedule C expenses of $75,388 and,
at trial, offered documentary evidence that, at best,
substantiates the expenditure of approximately one-half of that
amount. That lack of substantiation in the record supports the
examining agent’s determination that petitioner’s Schedule C
deductions included $8,292 of unsubstantiated expenses, and we so
find. Therefore, in accordance with section 1.6662-3(b)(1),
Income Tax Regs. (negligence includes “any failure by the
taxpayer * * * to substantiate items properly”), we sustain the
negligence penalty with respect to petitioner’s 1997 underpayment
attributable to $8,292 of unsubstantiated expenses.
Decision will be entered
under Rule 155.
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