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and we find respondent did not abuse his discretion in denying
Mrs. Dunne such relief.
IV. Whether Petitioners May Claim $20,000 of Legal Expenses That
They Incurred in 1999 as Trade or Business Expenses
In the notice of deficiency respondent disallowed a
deduction for $20,000 that petitioners listed on their Schedule C
as a business expense but added the $20,000 deduction to their
Schedule A as a miscellaneous itemized expense. If the $20,000
is deductible on petitioners’ Schedule C, then it is not subject
to the 2-percent floor generally applicable to miscellaneous
itemized deductions under section 67.
Deductions are a matter of legislative grace, and taxpayers
bear the burden of proving entitlement to the deductions claimed.
Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). In addition, taxpayers must maintain sufficient records
to substantiate any deductions claimed. Sec. 6001.
Petitioners argue that the notice of deficiency is arbitrary
as to the tax items for 1999. As discussed below, in certain
cases we have found that the Commissioner’s presumption of
correctness does not attach when a determination is found to be a
“naked” assessment and therefore arbitrary and excessive.
However, this doctrine applies only to unreported income, and the
usual presumption of correctness attaches when taxpayers assert
that the notice of deficiency is incorrect as to disallowed
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