- 57 -
Associates, P.A. v. Commissioner, supra at 84 (discussing the
standards that the Court applies to evaluate the testimony of
trial witnesses). We rely mainly on the testimony of Mr. DeWeese
and the voluminous record built by the parties through their
comprehensive stipulation of facts and exhibits.
III. Substantive Issues at Hand
A. Disallowance of Deductions
Section 162(a) generally provides that “There shall be
allowed as a deduction all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade
or business”. A taxpayer such as VRD/RTD or one of the PCs must
meet five requirements in order to deduct an item under this
section. The taxpayer must prove that the item claimed as a
deductible business expense: (1) Was paid or incurred during the
taxable year; (2) was for carrying on its trade or business;
(3) was an expense; (4) was a necessary expense; and (5) was an
ordinary expense.20 See Commissioner v. Lincoln Sav. & Loan
Association, 403 U.S. 345, 352 (1971); Welch v. Helvering,
290 U.S. 111, 115 (1933); see also Rule 142(a)(1). A
determination of whether an expenditure satisfies each of these
20 While sec. 7491(a) places the burden of proof upon the
Commissioner in certain cases, the Court has decided in an
unpublished order that sec. 7491(a) has no applicability to these
cases.
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Last modified: March 27, 2008