Robert L. and Brenda J. Tarter - Page 9

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         U.S. 111, 115 (1933).  Deductions are strictly a matter of                   
         legislative grace, and petitioners must show that their claimed              
         deductions are allowed by the Code.  Petitioners must also keep              
         sufficient records to substantiate any deduction that would                  
         otherwise be allowed by the Code.  See sec. 6001; New Colonial               
         Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).  In order to meet            
         their burden of proof, petitioners must introduce sufficient                 
         evidence to:  (1) Make a prima facie case establishing that                  
         respondent committed the errors alleged in the petition and (2)              
         overcome the evidence submitted by (or otherwise favorable to)               
         respondent.  See Lyon v. Commissioner, 1 B.T.A. 378, 379 (1925).             
         For the burden to shift to respondent, petitioners must comply               
         with the substantiation and record-keeping requirements of the               
         Code.  See sec. 7491(a)(2)(A) and (B).  We conclude that the                 
         burden of proof has not shifted to respondent with respect to any            
         of the issues affecting petitioners’ tax liability because we                
         find that petitioners failed to comply with substantiation                   
         requirements of the Code.                                                    
         A.   Employee Benefits and Payroll Taxes                                     
              Respondent’s notice of deficiency disallowed the amounts                
         petitioner claimed on his Schedule C for employee benefits and               
         payroll taxes, $97,212 and $578,441, respectively.  Respondent               
         determined that the expenses were disallowed because petitioners             
         did not provide information to support the deductions and did not            

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