Sandra Holmes - Page 4

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               A taxpayer is required to keep records to enable a                     
          determination of the taxpayer’s correct Federal income tax                  
          liability to be made.  Sec. 6001; sec. 1.6001-1(a), Income Tax              
               A taxpayer may deduct from income ordinary and necessary               
          expenses paid or incurred during a year in connection with the              
          production of income.  Sec. 212.                                            
               Under section 1.446-1(c)(1)(i), Income Tax Regs., a taxpayer           
          who uses the cash method of accounting to compute taxable income            
          may only deduct expenses in the year the expenses are paid.  See            
          Estate of Gordon v. Commissioner, 47 T.C. 462, 466 (1967);                  
          Dehoney v. Commissioner, T.C. Memo. 2006-108; Sandoval v.                   
          Commissioner, T.C. Memo. 1979-430.                                          
               Petitioner’s argument that the statutory language of section           
          212 allows her a deduction for legal expenses “incurred” but not            
          paid in 2001 is without merit.                                              
               Because petitioner has not substantiated that she paid any             
          legal fees in 2001, petitioner is not entitled to a deduction in            
          2001 for legal fees in any amount.                                          
               To reflect the foregoing,                                              

                                             Decision will be entered                 
                                        under Rule 155.                               

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Last modified: November 10, 2007