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father of TE and TG, did not have custody of TE and TG in 2004,
and was not married to Ms. Fowlkes in 2004.
Petitioner filed his 2004 Federal income tax return as head
of household and claimed three exemptions, one for himself and
dependency exemptions for TE and TG. Petitioner also claimed two
child tax credits and an earned income tax credit.
The notice of deficiency was sent to petitioner on October
24, 2005. In the notice of deficiency, respondent:
(1) Disallowed the dependency exemption deductions for TE and TG,
(2) changed petitioner’s filing status from head of household to
single and adjusted the standard deduction accordingly,
(3) disallowed the child tax credits, and (4) disallowed the
earned income credit. As a result, respondent determined a
deficiency of $5,778. Petitioner timely petitioned this Court,
and a trial was held on October 30, 2006, in Birmingham, Alabama.
OPINION
Deductions are a matter of legislative grace, and the
taxpayer must maintain adequate records to substantiate the
amounts of any deductions or credits claimed. Sec. 6001;
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992);
sec. 1.6001-1(a), Income Tax Regs. As a general rule, the
Commissioner’s determination of a taxpayer’s liability in the
notice of deficiency is presumed correct, and the taxpayer bears
the burden of proving that the determination is improper. See
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