Michael and Penny Rhodes - Page 6

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          each deduction available and show that all requirements have been           
          met.  New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440                  
          (1934).  It is also the taxpayer’s responsibility to maintain               
          records sufficient to enable the Commissioner to determine the              
          correct tax liability.  Sec. 6001; sec. 1.6001-1(a), Income Tax             
               The first issue is whether petitioners are entitled to                 
          deduct the expenses that created net operating losses.                      
          Respondent asserts that petitioners did not engage in the                   
          activities with the requisite profit objectives, and,                       
          alternatively, that, if petitioners operated the businesses for             
          profit, they failed to substantiate the expenses reported on                
          their Schedules C in excess of the reported gross income.  The              
          Court agrees with respondent.5                                              
               Section 162 allows a deduction for ordinary and necessary              
          expenses that are paid or incurred during the taxable year in               

               4Under sec. 7454(a), the burden of proof as to fraud is on             
          the Commissioner.  As to all other issues, sec. 7491(a), in some            
          instances, shifts the burden of proof to the Commissioner but               
          only as to the examination of taxpayers’ returns that commenced             
          after July 22, 1998.  The examination in this case commenced in             
          1996; therefore, the Court does not need to address sec. 7491(a).           
               5Because the Court holds that petitioners may not deduct the           
          excess of the claimed Schedule C expenses so as to create net               
          operating losses for the years at issue due to lack of                      
          substantiation, it is not necessary to address whether                      
          petitioners were in fact operating a business for profit.                   

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