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Amway 1994 1995
Gross income $ 157.49 $ 999.17
Expenses
Car and truck 1,672.43 6,830.70
Insurance 396.74 378.00
Office expenses 75.37 -0-
Legal -0- 25.00
Supplies -0- 127.67
Utilities 211.48 873.16
Other expenses 57.00 60.00
Total expenses 2,413.02 8,294.53
Net loss $2,255.53 $7,295.36
In the notice of deficiency, respondent disallowed the
losses resulting from the claimed deductions for the reported
expenses because petitioners (1) were not operating for profit a
business under section 183, or, in the alternative (2) failed to
substantiate the expenses of the two activities. Additionally,
respondent determined all documentation submitted by petitioners
in support of the reported expenses was false and determined the
section 6663 fraud penalty with respect to those activities.3
Deductions are a matter of legislative grace, and the
taxpayer bears the burden of proving entitlement to any
deductions claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992). The taxpayer is required to identify
3The notice of deficiency is addressed jointly to both
petitioners. In the determination of fraud, the notice of
deficiency does not specify that it is determined only as to Ms.
Rhodes. As such, the Court construes the notice of deficiency as
a determination of fraud against both petitioners; however, at
trial and on brief, respondent asserts that the fraud penalty is
only against Ms. Rhodes. Respondent, therefore, is deemed to
have conceded the fraud penalty as to Mr. Rhodes.
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