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On the other hand, we find that the Chongs did not act
reasonably and prudently in taking the disallowed Schedule C
deductions. Section 274(d)’s substantiation rules are not
complex, nor are they so little known as to be a trap for the
average taxpayer. The Chongs could have done any number of
things to discover what was needed to claim the business
deductions. They could have contacted a professional tax
preparer or, if they didn’t want to spend money on professional
assistance, they could have contacted the IRS directly for
advice. The IRS annually publishes an up-to-date version of
Publication 463--Travel, Entertainment, Gift, and Car Expenses.
This publication outlines in detail the various business expense
deductions which are available and the records required to
substantiate them. The fact that Yung didn’t try to keep any
sort of ledger or even keep all of his receipts re-enforces our
conclusion that the Chongs did not act reasonably. We find that
the Chongs were negligent, and disregarded the rules and
regulations, in claiming their disallowed Schedule C deductions.
CONCLUSION
The Chongs are not entitled to their claimed deductions for
either the partnership loss or the Schedule C business expenses,
and the Commissioner was correct in imposing an accuracy-related
penalty under section 6662(a) for their disallowed Schedule C
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