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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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