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84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). The taxpayer is required to maintain records sufficient
to enable the Commissioner to determine his correct tax
liability. Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440
(2001); sec. 1.6001-1(a), Income Tax Regs. Such records must
substantiate both the amount and purpose of the claimed
deductions. Higbee v. Commissioner, supra.
I. Schedule C Deductions
Petitioner claimed a $15,652 Schedule C business loss for
2004 that resulted from his deducting $20,548 in business
expenses and reporting $4,896 in income. The notice of
deficiency disallowed $7,853, the entire amount claimed for
business use of the home, and $3,949 in other expenses claimed
for computers, monitors, and a fax machine.
A. Business Use of Home
Section 162(a) allows a taxpayer to deduct all ordinary and
necessary expenses paid or incurred in carrying on a trade or
business. The taxpayer is generally precluded from deducting
expenses incurred in connection with the business use of the
residence. See sec. 280A. As an exception to the general rule,
section 280A(c)(1) permits the deduction of expenses allocable to
a portion of the dwelling unit which was used exclusively and
regularly (1) as a principal place of business, (2) as the place
for meeting with customers, clients, or patients in the normal
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