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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.
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