-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