Robert K. and Cheryl Hardwick - Page 8

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          W-2G issued by the casinos, as only jackpots in excess of $1,200            
          were reported on Forms W-2G in 2002.  Neither petitioners’ tax              
          records, nor petitioners, specifically recorded or otherwise                
          accounted for petitioners’ slot machine winnings below $1,200.              
          Petitioners claimed gambling losses of $308,400 on their 2002               
          joint Federal income tax return, the exact amount of their                  
          reported gambling winnings.                                                 
               The notice of deficiency was issued to petitioners on                  
          November 9, 2005, and reflected a deficiency of $58,945 for 2002.           
          Respondent disallowed $138,185 of petitioners’ claimed $308,400             
          gambling losses due to lack of substantiation.  Petitioners filed           
          with this Court a timely petition, and a trial was held on                  
          November 3, 2006, in Birmingham, Alabama.8                                  
          I.   Burden of Proof                                                        
               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;                   

               8At trial, and on brief, respondent objected to the expert             
          testimony of petitioner’s accountant as the proper procedure                
          required by Rule 143(f) and the pretrial order were not followed,           
          and to the admission into evidence of substantiation documents              
          that were prepared by the accountant and Mr. Hardwick in                    
          anticipation of trial.  The Court sustained the objection and did           
          not permit the accountant to testify as an expert, but allowed              
          various numerical summary documents that Mr. Hardwick and his               
          accountant had prepared to be introduced.                                   

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