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Ratcliff v. Commissioner, T.C. Memo. 1983-636 (citing Hendricks
v. Commissioner, 406 F.2d 269, 272 (5th Cir. 1969), affg. T.C.
Memo. 1967-140). Petitioners used the cash method for reporting
income and deductions. Fees for services by Barad that allegedly
were owed by the City have never been included in income, and
unpaid amounts, even if earned, do not constitute "bad debts"
within the meaning of section 166 for which a deduction for
worthlessness may be claimed. See Crosson v. Commissioner,
supra. Therefore, as a matter of law and without regard to the
burden of proof, respondent properly disallowed the bad debt
deductions for each of the years in issue.
In regard to the advertising and offices expenses, section
162(a) permits a deduction for all “ordinary and necessary
expenses paid or incurred during the taxable year in carrying on
any trade or business”. Petitioners bear the burden of proving
their entitlement to the claimed deductions. Rule 142(a);
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); see also
Banker v. Commissioner, T.C. Memo. 1999-351. Taxpayers must
establish that expenses deducted are ordinary and necessary and
must maintain records sufficient to substantiate the amounts of
the deductions claimed. Sec. 6001; sec. 1.6001-1(a), Income Tax
Regs. If the taxpayers do not retain the required records and
produce credible evidence, the burden of proof does not shift to
respondent. Sec. 7491(a)(2)(A) and (B). Petitioners failed to
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