Kai-Chung C. and Meekhing T. Lam - Page 8

                                         -8-                                          
                                       OPINION                                        
               This is a substantiation case in which we are asked to                 
          decide whether petitioners substantiated nearly a quarter of a              
          million dollars of business expenses that remain in dispute.  The           
          business expenses that remain in dispute include $53,371 repair             
          and maintenance, $52,366 supplies, $48,486 bad debt, $19,579                
          office, $4,463 insurance, $650 interest, $12,583 taxes and                  
          licenses, $7,552 depreciation, $693 advertising, $1,601 legal and           
          professional, $18,272 car and truck, $15,979 travel, and $5,390             
          meals and entertainment.  We also must decide whether petitioners           
          failed to include $3,424 rental payments in income in 1996 and              
          are liable for the accuracy-related penalty.  We first address              
          the general deductibility rules of business expenses under                  
          section 162, then examine the additional strict substantiation              
          requirements of section 274(d).                                             
          I.   Business Expenses Under the General Rule                               
               We begin with two fundamental principles of tax litigation.            
          First, as a general rule, the Commissioner’s determinations are             
          presumed correct, and the taxpayer bears the burden of proving              
          that these determinations are erroneous.4  Rule 142(a); see                 


               4This principle is not affected by sec. 7491(a), because               
          respondent initiated the examination of petitioners’ returns for            
          the years at issue in October 1997, which is before the July 22,            
          1998, effective date of the Internal Revenue Service                        
          Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.                 
          3001(a), 112 Stat. 726.                                                     




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  Next

Last modified: May 25, 2011