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secs. 1.263(a)-1 and 1.263(a)-2(a), Income Tax Regs. The
taxpayer is required to maintain records sufficient to enable the
Commissioner to determine his correct tax liability. See sec.
6001; sec. 1.6001-1(a), Income Tax Regs. The taxpayer has the
burden to prove the Commissioner’s determination was in error.16
Rule 142(a).
At trial, petitioner produced a check payable to VVI for
$80,000, dated October 3 or 5, 1995, bearing the notation “asset
purchase UG”.17 Mr. Reeves testified that the $80,000
expenditure was initially recorded in petitioner’s books as an
“equipment purchase” and was most likely paid to purchase
darkroom equipment, plates, small hand tools, paper, and ink. On
brief, petitioner indicated that the expenditure was most likely
for “miscellaneous equipment that would have gone hand-in-hand
with the printing equipment”.
Although small hand tools, paper, and ink could fit the
description of incidental materials and supplies the costs of
which may be deducted currently under section 162, petitioner
16 Petitioner does not argue that sec. 7491(a) operates to
shift the burden of proof to respondent. Even if petitioner had
so argued, the burden of proof would not shift under sec. 7491(a)
because petitioner has not shown it maintained all required
records, nor has it shown it cooperated with the reasonable
requests of respondent for witnesses, documents, or meetings.
17 UG was the acronym for Universal Graphics. Universal
Graphics was the business name for VVI’s printing, advertising,
and marketing services before petitioner’s sec. 355
reorganization.
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Last modified: November 10, 2007