James G. LeBloch and Cathy Michelsen LeBloch - Page 36




                                        -36-                                          
                    b.  Other Expenses                                                
               Petitioners argue that they have substantiated the $18,719             
          claimed as “other expenses” through the introduction of Exhibits            
          119-P and 120-P.   We disagree.  Exhibit 119-P was received into            
          evidence through the parties’ stipulation that the exhibit                  
          reflects “documents which Petitioners contend pertain to other              
          expense for taxable years 1997”.  Exhibit 120-P was received into           
          evidence through the parties’ stipulation that the exhibit                  
          reflects “documents which Petitioners contend pertain to the bank           
          deposit analysis”.  Together, Exhibits 119-P and 120-P have                 
          approximately 110 pages, and the “documents” included therein               
          (mainly canceled checks, bank statements, and receipts) do not              
          persuade us that the expenses reflected therein are properly                
          deductible by petitioners.  Nor do petitioners in their posttrial           
          opening brief persuade us that they have satisfied the                      
          requirements for deductibility; petitioners’ entire argument in             
          brief as to this point is as follows:                                       
                    The deduction taken of $18,719 has been adequately                
               substantiated (Exh 119-P and 110-P).  Natures Touch as                 
               a sole proprietorship during the first 10 months of                    
               1997 was an accrual taxpayer.  Expenses budgeted to                    
               begin the Carlsbad store location were accrued by the                  
               sole proprietorship.  This is an issue that Respondents                

               14(...continued)                                                       
          as well as her statement of any purported business meal that she            
          purchased on that day along with the identity of the person with            
          whom she dined.  We give little weight to the “expense record”.             
          We note that the expenses reflected in many of the invoices in              
          Exhibit 112-P do not appear on Michelsen’s expense record.                  






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