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a. Petitioners’ Record Keeping
Petitioners’ bookkeeper maintained books and records for ERE
using Quickbooks software. The software produced financial
reports, including a general ledger. Petitioners kept ERE’s
records separate from Dr. Knudsen’s medical practice records and
petitioners’ personal records. Petitioners also maintained a
separate bank account for ERE.
Although we are satisfied that petitioners kept financial
records of their breeding activity, we are not convinced that
petitioners’ record keeping represented anything other than an
effort to substantiate expenses claimed on their return. As we
have held:
The purpose of maintaining books and records is
more than to memorialize for tax purposes the existence
of the subject transactions; it is to facilitate a
means of periodically determining profitability and
analyzing expenses such that proper cost saving
measures might be implemented in a timely and efficient
manner. * * * [Burger v. Commissioner, T.C. Memo.
1985-523 (citing Golanty v. Commissioner, 72 T.C. 411,
430 (1979), affd. without published opinion 647 F.2d
170 (9th Cir. 1981)), affd. 809 F.2d 355 (7th Cir.
1987).]
Petitioners presented no evidence that their books and records
were used to review profitability or to implement cost-saving
measures.
While a taxpayer need not maintain a sophisticated cost
accounting system, the taxpayer should keep records that enable
the taxpayer to make informed business decisions. See Burger v.
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