-14-
the promissory notes were valid negotiable instruments under
State law.
Finally, petitioner failed to produce credible evidence to
prove the nature and extent of the consulting services provided
to In Touch during 2000 or to prove that the economic performance
requirement of section 461(h)(1) was satisfied with respect to
the consulting fees claimed by In Touch on its 2000 return.
Consequently, we hold that petitioner failed to demonstrate that
respondent’s disallowance of In Touch’s claimed consulting fees
was erroneous, and we sustain respondent’s determination.
III. Substantiation of Expenses
Deductions are a matter of legislative grace, and the
taxpayer must clearly demonstrate entitlement to any deductions
claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
A taxpayer is obligated to keep records sufficient to allow the
Commissioner to establish the correct amount of the taxpayer’s
deductions. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. A
taxpayer must produce those records upon request for inspection
by authorized internal revenue officers or employees. Sec.
7602(a); sec. 1.6001-1(e), Income Tax Regs. If upon examination
the Commissioner disallows a business expense deduction, the
taxpayer bears the burden of introducing evidence to substantiate
the claimed deduction. Rule 142(a); see also Wilson v.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: November 10, 2007