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explanation section for the “Other” expense, petitioners stated
the $14,000 was for a “payout of phone equipment”.
Thell Prueitt, a representative of Alpha Telcom, helped
petitioners prepare the 2001 and 2002 returns.
Respondent issued a notice of deficiency on March 3, 2005,
disallowing the Schedule C deductions for 2001 and 2002 and the
Form 8826 credit for 2001. Petitioners timely filed their
petition on June 1, 2005.
OPINION
I. Burden of Proof
Under section 7491, the burden of proof shifts from the
taxpayer to the Commissioner if the taxpayer produces credible
evidence with respect to any factual issue relevant to
ascertaining the taxpayer’s tax liability. Sec. 7491(a)(1).
However, section 7491(a)(1) applies with respect to an issue only
if the taxpayer has complied with the requirements to
substantiate any item, has maintained all records, and has
cooperated with reasonable requests by the Commissioner for
witnesses, information, documents, meetings, and interviews. See
sec. 7491(a)(2)(A) and (B).
Although petitioners claimed that section 7491(a) applies,
they failed to introduce sufficient evidence to shift the burden
to respondent. Nonetheless, our findings in this case are based
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