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Discussion
Deductions are a matter of legislative grace, and the
taxpayer must maintain adequate records to substantiate the
amounts of any deductions or credits claimed. Sec. 6001;
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992);
sec. 1.6001-1(a), Income Tax Regs. As a general rule, the
Commissioner’s determination of a taxpayer’s liability in the
notice of deficiency is presumed correct, and the taxpayer bears
the burden of proving that the determination is improper. See
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
However, pursuant to section 7491(a)(1), the burden of proof on
factual issues that affect the taxpayer’s tax liability may be
shifted to the Commissioner where the “taxpayer introduces
credible evidence with respect to * * * such issue”. The burden
will shift only if the taxpayer has, inter alia, complied with
substantiation requirements pursuant to the Internal Revenue Code
and “cooperated with reasonable requests by the Secretary for
witnesses, information, documents, meetings, and interviews”.
Sec. 7491(a)(2). In the instant case, petitioner did not comply
with the substantiation requirements, and failed to introduce
credible evidence at trial. Accordingly, the burden remains on
petitioner.
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Last modified: November 10, 2007