§6001 — Notice or regulations requiring records, statements, and special returns

We overrule respondent's objection.

The wrinkle here is that section 274 (d) expressly overruled Cohan for certain types of business deductions (including travel) by imposing strict substantiation requirements.

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). As to the burden of production, section 7491(c) provides that the Commissioner “shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount.” However, section 7491(c) does not apply to TEFRA partnership-level proceedings (such as this case).

We conclude that section 7491(a) does not apply here because petitioners have not produced evidence that they have satisfied the preconditions for its application.

§ 6001; Treas. Reg. § 1.6001-1(a), (e). If the taxpayers establish that they paid or 2 Pursuant to section 7491(a), the burden of proof may shift to the Commissioner if the taxpayer introduces credible evidence with respect to any factual issues relevant to ascertaining the taxpayer’s tax liability. The Court concludes that section 7491(a) does not apply because petitioners have not produced any evidence that they have satisfied the preconditions for its application.

Petitioners did not keep records as required by section 6001. Their underpayment was attributable to negligence. The accuracy-related penalty does not apply with respect to any portion of the underpayment for which the taxpayer shows that he or she had reasonable cause and acted in good faith.

Petitioners did not keep records as required by section 6001. Their underpayment was attributable to negligence. The accuracy-related penalty does not apply with respect to any portion of the underpayment for which the taxpayer shows that he or she had reasonable cause and acted in good faith.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; see sec. 1.6001-1(a), Income Tax Regs. The Court ofAppeals for the Seventh Circuit has stated that the presumption ofcorrectness does not apply and the burden ofproofwill shift to the Commissioner where the Commissioner's deficiency determination does not have - 33 - [*33] a rational foundation or is arbitrary and excessive.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; see sec. 1.6001-1(a), Income Tax Regs. The Court ofAppeals for the Seventh Circuit has stated that the presumption ofcorrectness does not apply and the burden ofproofwill shift to the Commissioner where the Commissioner's deficiency determination does not have - 33 - [*33] a rational foundation or is arbitrary and excessive.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; see sec. 1.6001-1(a), Income Tax Regs. The Court ofAppeals for the Seventh Circuit has stated that the presumption ofcorrectness does not apply and the burden ofproofwill shift to the Commissioner where the Commissioner's deficiency determination does not have - 33 - [*33] a rational foundation or is arbitrary and excessive.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; see sec. 1.6001-1(a), Income Tax Regs. The Court ofAppeals for the Seventh Circuit has stated that the presumption ofcorrectness does not apply and the burden ofproofwill shift to the Commissioner where the Commissioner's deficiency determination does not have - 33 - [*33] a rational foundation or is arbitrary and excessive.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; see sec. 1.6001-1(a), Income Tax Regs. The Court ofAppeals for the Seventh Circuit has stated that the presumption ofcorrectness does not apply and the burden ofproofwill shift to the Commissioner where the Commissioner's deficiency determination does not have - 33 - [*33] a rational foundation or is arbitrary and excessive.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; sec. 1.6001-1(a), (e), Income Tax Regs. Insofar as the Court has sustained respondent's disallowance ofdeductions, the Court has done so because petitioners did not produce records sufficient to substantiate their deductions. Respondent has therefore met his burden of production to show that petitioners were negligent and disregarded the applicable rules or regulations.¹6 A penalty under section 6662(a) does not apply to any portion ofan under

6001; sec. 1.6001-1(a), Income Tax Regs. Petitioner did not contest the section 6651(a)(1) and (2) and 6654 additions to tax. Subject to adjustment to reflect respondent's concessions, we sustain respondent's determinations. See Rule 34(b)(4); Swain v. Commissioner, 118 T.C. 358, 362-365 (2002). 2Pursuant to sec. 7491(a), the burden ofproofmay shift to the Commissioner ifthe taxpayer introduces credible evidence with respect to any factual issue. This section is inapplicable because petitioner f

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Taxpayers generally bear the burden of proving that the Commissioner’s determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933). Section 7491 does not apply because petitioner has failed to substantiate his deductions and provide credible evidence.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Taxpayers generally bear the burden of proving that the Commissioner’s determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933). Section 7491 does not apply because petitioner has failed to substantiate his deductions.

Section 7491 does not apply here because petitioner has failed to substantiate his deductions and provide evidence other than his own testimony.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Taxpayers generally bear the burden of proving that the Commissioner’s determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section 7491 does not apply because petitioner has failed to substantiate her deductions and provide credible evidence.

Therefore section 7491 does not apply here.

6001; sec. 1.6001-1(a), (e), Income Tax Regs. Fourth, the fact that a taxpayer reports a deduction on the taxpayer’s income tax return is not sufficient to substantiate the deduction claimed on the return. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979); Roberts v. Commissioner, 62 T.C. 834, 837 (1974). Rather, a tax return is merely a statement of the taxpayer’s claim; the return is not presumed to be correct. 7 Sec. 7491 does not apply in this case to shift the burden of proof to respondent

6001; sec. 1.6001-1(a), Income Tax Regs. Section 7491 is inapplicable because petitioner has not complied with the requisite substantiation requirements.

Accordingly, we need not decide whether petitioners have complied with the requirements of section 7491(a)(2), and petitioners retain the burden of proving they are entitled to the Schedule F deductions claimed.

435, 440 (1934).8 7Under the circumstances, we need not decide whether Mr.

435, 440 (1934).8 7Under the circumstances, we need not decide whether Mr.

We therefore need not decide whether petitioners have met the conditions ofsection 7491(a)(2) required to shift the burden ofproofto respondent with respectto those issues.

We :herefore need not decide whether petitioner has also mets the conditions of section 7491(a) (2)i required to shift the burden of proof to respondent with respect- to those issues.

Accordingly, the Court need not decide whether section 7491(a)(1) is applicable in this case.

In addition to the foregoing, we are not convinced that the amounts claimed are even deductible, apart from their lack of substantiation.

Accordingly, the Court need not decide whether section 7491(a)(1) is applicable in this case.

Accordingly, the Court need not decide whether current section 7491(a)(1) is applicable in this case.

Petitioner argues nonetheless that the ledgers alone are sufficient substantiation for taxpayers operating in the medical marijuana industry because, he states, that industry "shun[s] formal 'substantiation' in the form ofreceipts." We disagree with petitioner that the ledgers standing alone are sufficient substantiation.

Substantiation Principles Section 6001 requires that taxpayers keep records in compliance with the rules and regulations prescribed by the Secretary.

Unreported gross receipts Section 6001 requires that each person maintain books and records “sufficient to show whether or not such person is liable for tax.” See also DiLeo v.

Petitioner did not produce sufficient substantiation to support his claim as section 6001 requires.

Section 6001 requires taxpayers to establish their entitlement to deductions and substantiate the amounts of their claimed deductions by keeping and providing books of accounts or records sufficient to establish “matters required to be shown by such person in any return of such tax or information.” Treas.

Substantiation Principles Section 6001 requires, inter alia, that taxpayers keep records in compliance with the rules and regulations prescribed by the Secretary of the Treasury.

Section 6001 requires all taxpayers to maintain sufficient records to determine their correct tax liabilities.

Section 6001 requires every person subject to income tax to maintain books and records sufficient to establish the amount of gross income and deductions shown on its income tax return.

As to the latter, section 6001 provides that the Secretary “may require any person” to “keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title.” Treasury Regulation § 1.6001-1(a) specifies, in turn, that “any person subject to tax under subtitle A of the Code .

The regulation describes the sorts of items that may constitute adequate baseline documentation.11 The regulation describes examples 11 Section 6001 requires that taxpayers maintain records “sufficient to show whether or not such person is liable for tax” and, in so doing, “comply with such rules and regulations as the Secretary may from time to time prescribe.” Treasury Regulation § 1.6001-1(e) requires that such records “shall be retained so long as t

Section 6001 requires taxpayers to maintain records substantiating their income.

Section 6001 requires every person subject to income tax to maintain books and records sufficient to establish the amount of gross income and deductions shown on its income tax return.

Section 6001 requires taxpayers to maintain records sufficient to establish the amount of each deduction.

Record-keeping Section 6001 requires that "[e]veryperson liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe." (Emphasis added.) A taxpayer is thus require

Accordingly, we hold that the July 2, 2014, notice ofdeficiency was timely.

Accordingly, we hold that the IRS complied with the sec.

Section 6001 requires taxpayers to maintain sufficient records to allow the IRS to determine their correct tax liability.

Section 6001 requires that "[e]very person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe." Taxpayers are thus required to keep records

Section 6001 requires taxpayers to maintain sufficient records to allow the IRS to determine their correct tax liability.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction claimed.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction claimed.

We hold, therefore, that petitioners' 2008 State income tax refund constituted taxable income for the 2008 tax year.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction claimed.

We hold, consistent with those admissions, that petitioners underreported gross receipts from his business activities in the amounts of$30,484, $95,634, and $70,674, respectively.

Section 6001 requires taxpayers to maintain records sufficient to establish the amount ofeach deduction.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction.

Section 6001 requires taxpayers to maintain records sufficient to establish the amount ofeach deduction.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction.

As to the former, section 6001 requires taxpayers to maintain such records as prescribed by the Secretary, and he has done so in regulations that direct the maintenance ofrecords "sufficient to establish the amount ofgross income, deductions, credits, or other matters required to be shown" in an income tax return.

As to the former, section 6001 requires taxpayers to maintain such records as prescribed by the Secretary, and he has done so in regulations that direct the maintenance ofrecords "sufficient to establish the amount ofgross income, deductions, credits, or other matters required to be shown" in an income tax return.

Section 6001 requires taxpayers to substantiate the amount claimed as cost ofgoods sold and maintain ¹²Sec.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction claimed.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction claimed.

In addition, section 6001 requires a taxpayerto maintain sufficient records to allow the determination ofthe taxpayer's correct tax liability.

Section 6001 requires taxpayers to maintain records sufficient to substantiate any amount claimed.

Section 6001 requires taxpayers to 3On the record, the parties agree that petitioners bear the burden ofshowing their entitlement to the contribution deductions under consideration.

In sum, we hold that petitioners failed to meet their burden ofproofto show respondent's disallowance ofthe deduction petitioners claimed for unreimbursed employee expenses to be in error.

Section 6001 requires taxpayers to maintain records sufficient to establish the amount ofeach deduction.

Section 6001 requires taxpayers to maintain records sufficient to establish the amount ofeach deduction.

Section 6001 requires all taxpayers to maintain adequate books and records oftaxable income.

Section 6001 requires taxpayers to maintain sufficient records to allow the IRS to determine their correct tax liability.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction.

Section 6001 requires a taxpayer to keep books and records sufficient to establish the taxpayer's gross income, deductions, losses, and credits.

Section 6001 requires the taxpayerto maintain records sufficient to establish the amount ofeach deduction claimed.

With respect to the categories of deductions that petitioner claimed, section 6001 requires that taxpayers maintain records sufficient to substantiate the amounts claimed.

Accordingly, we hold petitioner is not entitled to a deduction for expenses while traveling away from home because California was his tax home.

Accordingly, we hold petitioner is not entitled to a deduction for expenses while traveling away from home because California was his tax home.

With respect to the categories of deductions that petitioner claimed, section 6001 requires that taxpayers maintain records sufficient to substantiate the amounts claimed.

Section 6001 requires taxpayers to keep books and records which are sufficient to establish their gross income, deductions, and credits and which allow the Commissioner to verify their correct tax liability.

Section 6001 requires the taxpayer to maintain records 5The record includes copies ofpetitioners' 2010 and 2011 Forms 1040, U.S.

Section 6001 requires taxpayers to maintain records sufficientto establish the amount ofeach deduction.

Harrold-Jones was an independent contractor, and we hold accordingly.

Section 6001 requires taxpayers to keep records long enough to properly substantiate items they claim on their returns.

Harrold-Jones was an independent contractor, and we hold accordingly.

Section 6001 requires taxpayers to maintain records sufficientto establish the amount ofeach deduction.

Therefore, we hold that petitioner is not entitled to the deductions he claimed for 2008, because he failed to carry his burden ofproving that respondent's determinations are incorrect.

Although he received a response datedNovember 1, 1995, from the Department of 2Section 6001 provides, in part: Every person liable for any tax imposed by this title, or forthe collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretarymay from time to time prescribe.

Record-keeping Section 6001 requires that-- Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Section 6001 requires taxpayers to maintain records sufficientto establish the amount ofeach deduction.

Section 6001 requires taxpayers to maintain records sufficientto establish the amount ofeach deduction.

In addition, section 6001 requires a taxpayerto maintain sufficientrecords to allow the determination ofthe taxpayer's correct tax liability.

Section 6001 requires that-- .

Section 6001 requires taxpayers to maintain records sufficient to establish the amount ofeach deduction.

Additionally, section 6001 requires all taxpayers to keep records oftheir activities in a manner that.will enable the determination ofthe correct amount ofincome subject to tax.

Lack ofrecords Section 6001 requires that- Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

In addition, section 6001 requires a taxþayer to maintain sufficient records to allow the determination ofthe taxpayer's correct tax liability.

6001 requires that taxpayers "shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe." Sec.

To shift the burden, taxpayers must comply with substantiation requirements, maintain all the records that section 6001 requires, and cooperate with the Commissioner's reasonable requests.

Section 6001 requires that "[e]very person liable for any tax imposed by this title * * * shall keep such records * * * as the Secretary may from time to time prescribe", and section 6011(a) requires that a return be filed by "any person made liable for any tax imposed by this title".

In addition, section 6001 requires a taxpayerto maintain sufficientrecords to allow the determination ofthe taxpayer's correct tax liability.

In addition, section 6001 requires a taxpayerto maintain sufficientrecords to allow the determination ofthe taxpayer's correct tax liability.

Section 6001 requires taxpayers to maintain records sufficientto establish the amount ofeach deduction.

As a result of the above, we hold that petitioners are entitled to deduct Mrs.

Section 6001 requires that taxpayers keep books and records which are sufficient to establish (among other things) their gross income, deductions, and credits and which allow the Commissionerto verify their correct tax liability.

In addition, section 6001 requires a taxpayer to maintain sufficient records-to allow the determination ofthe taxpayer's correcttax liability.

Inadequate Records Section 6001 requires a táxpayer to maintain sufficient records to allow for the determination ofthe taxpayer's correct tax liability.

6001 provides that "[e]very person liable for any tax imposed by this title, or for the collection thereof, shall keep such records * * * and comply with such rules and regulations as the Secretary may from time to time prescribe." Sec.

Omitted Income Adjustments--Bank Deposits Section 6001 requires a taxpayer to maintain sufficient records to allow the determination ofthe taxpayer's correct tax liability.

Because we hold that both petitioners received earned income during each year in issue, further substantive discussion ofearned income in the dependent care credit context is unnecessary.

Section 6001 requires a taxpayer to keep books and 8(...continued) 61 T.C.M.

Section 6001 requires taxpayers to maintain records sufficientto establish the amount ofeach deduction.

Section 6001 requires a taxpayer to maintain sufficient records to allow for the determination ofa taxpayer's correct tax liability.

Section 6001 requires taxpayers to maintain records sufficient to establish the amount ofeach deduction.

Pursuant to section 6001 and the regulations thereunder, taxpaye s are required to kee sufficient srecords to establish the amounts of deductions cla med on .any Federal tax return.

Section 6001 requires all taxpayers to maintain sufficient records to determine their correct-tax liabilities.

For the foregoing reasons, we hold that the losses claimed from petitioners' farming activity for 2002, 2003, and 2004 are not limited by section 183.

- 11 - Lorber also sent several IDRs to petitioner that petitioner failed to respond to." - On the basis of the facts and circumstances, we hold that petitioner has failed 'to fully cooperate with respondent's reasonable requests for information and documentation.

Section 6001 requires that-- .

Section 6001 requires that-- Every person liable for any tax imposed by title, or for the collection thereof, shall keep records, render such statements, make such retur comply with such rules and regulations as the Se may from time to .time prescribe .

Section 6001 requires taxpayers to maintain records sufficient to establish the amount of each deduction.

In General Section 6001 requires a taxpayer to maintain sufficient records to allow the determination of the taxpayer's correct tax liability .

Reconstruction of Gross Income Section 6001 requires a taxpayer to maintain sufficient records to allow for the determination of the taxpayer's correct tax liability .

Section 6001 requires taxpayers to .maintain records sufficient to establish the amount of each deduction .

Adiustment of the' Cost of Goods Sold Section 6001 requires a taxpayer to keep records or render statements sufficient to establish his gross income, deductions, and credits.

Section 6001 requires that-- Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such .returns, and comply with such rules and regulations as the Secretary may from time-to time prescribe .

S .(cid:127)435 , 440 (1934 ) Section 6001 requires taxpayers to-maintain records, statements , and returns and to comply with such rules and regulations as the Secretary prescribes .

9 - Section 6001 requires taxpayers to maintain books and records adequate to determine their tax liability .

the major expense was taken on by the developer ." Rodriguez certainly claimed more than personal ads on his Schedule C : 1998 1999 2000 $4,465 $3 ,173 $3,473 Section 162(a) allows a taxpayer to deduct advertising expenses that are both "ordinary and necessary" in conducting a "trade"or business ." Section 6001 requires a taxpayer to keep and present the Commissioner with sufficient documentation to substantiate his tax liability .

Section 6001 requires taxpayers to maintain records sufficient to establish the amount of-each deduction .

Section 6001 requires taxpayers to maintain records sufficient to establish the amount of each deduction .

4 Accordingly, we hold that Mr .

Section 6001 requires taxpayers to maintain records sufficient to establish the amount of each deduction .

Section 6001 requires taxpayers to maintain adequate books of account or records tha t are sufficient to establish the amount of gross income, deductions, or other matters required to be shown by such persons -8- on their tax return .

Petitioner does not argue that she satisfied the elements for a burden shift , but even if she did advance this argument , petitioner did not produce sufficient substantiation to support her claims as section 6001 requires .

Section 6001 requires taxpayers to maintain riecords sufficient to establish the amount of each deduction,.

Unreported Schedule C Gross Receipt s Section 6001 requires a taxpayer to maintain sufficient records to allow for the determination of the taxpayer's correct tax liability .

Pursuant to section 6001, taxpayer is required to "keep such permanent books of account records, including inventories, as are sufficient to estab ish the amount of gross income, deductions, credits, or other m tters" .

decide is whether petitioners are entitled to deduct Schedule C car and truck expenses of $15,767-.° Section 6001 requires taxpayers-to maintain records .

Section 6001 requires taxpayers to maintain adequate books and records sufficient to substantiate all costs of goods sold and all deductions claimed on tax returns .

Unreported Schedule C Gross Receipt s Section 6001 requires a taxpayer to maintain sufficient records to allow the determination of the taxpayer's correct tax liability .

However, any amount claimed as cost of goods sold must be substantiated, and section 6001 requires a taxpayer, to maintain adequate books of accounts or records that are sufficient to establish the amount of gross income, deductions, or other matters required to be shown .by such persons on their tax return .

Section 6001 requires a taxpayer to maintain adequat e } books of account or 'records that are sufficient to establish the amount of gross income, deductions, or other°matters ;requiredto be shown on .his tax return .

Unreported Schedule C Gross Receipts Section 6001 requires a taxpayer to maintain sufficient records to allow for the determination of the taxpayer's correct tax liability .

Section 6001 provides, in pertinent part, as follows : SEC .

Section 6001 provides, in pertinent part, as follows: SEC.

Unreported Schedule C Gross Receipts Section 6001 requires a taxpayer to maintain sufficient records to allow for the determination of the taxpayer' s correct tax liability.

Moreover, section 6001 requires any person liable for tax imposed under title 26 to keep records, render statements, make returns, and comply with the rules and regulations .

- 5 - Section 6001 requires generally that every person liable for any tax keep such records, render such.

Unreported Schedule C Gross Receipts Section 6001 requires a taxpayer to maintain sufficient records to allow for the determination of the taxpayer's correct tax liability .

Section 6001 provides generally that every person liable for any tax shall keep such records, render such statements, make such returns, and otherwise comply with applicable rules and regulations for the reporting of income and expenses.

Section 6001 requires all taxpayers to maintain adequate books and records of income.

We hold that petitioners have not substantiated the existence of a capital loss carryover that would offset the capital gain income determined by respondent in any of the years in issue.

Section 6001 requires all taxpayers to maintain sufficient records to determine their tax liabilities.

Discussion Section 6001 requires a taxpayer to maintain sufficient records to allow for the determination of the taxpayer’s correct tax liability.

- 11 - respondent’s Fresno Appeals Office.5 In short, section 6001 provides respondent with a reasonable basis in law to require petitioner to file a tax return for 1997.

Section 6001 requires generally that every person liable for any tax keep such records, render such statements, make such returns, and comply with such regulations as the Secretary may from time to time prescribe.

Accordingly, we hold that petitioner is liable for accuracy-related penalties under section 6662(a) for the years 1993, 1994, and 1995 in the amounts of $635.40, $82.00, and $311.80, respectively.

1.6001-1(a), Income Tax Regs. Under certain - 5 - circumstances, where a taxpayer establishes entitlement to a deduction but does not establish the amount of the deduction, the Court is allowed to estimate the amount allowable. See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). However, section 274(d) overrules the so-called Co

1.6001-1(a), Income Tax Regs. In addition, the taxpayer bears the burden of substantiating the amount and purpose of the claimed deduction. See Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Section 7491(a), a new provision created by Internal Revenue Service Restructuring and Reform

1.6001- 1(a), Income Tax Regs. When a taxpayer establishes that he paid or incurred a deductible expense but does not establish the amount of the deduction, we may estimate the amount allowable in certain circumstances. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d 3 The examination in this case began in 1996; therefore, sec. 7491

Moreover, section 6001 imposes on taxpayers a duty to maintain books and records sufficient to support items reported on their returns.

Moreover, section 6001 imposes on taxpayers a duty to maintain books and records sufficient to support items reported on their returns.

6001; see also Briggs v. Commissioner, T.C. Memo. 2000-380; sec. 1.6001-1(a), (d), Income Tax Regs. Respondent’s determination in the notice of deficiency of the Vapor Room’s COGS as zero reflects that petitioner failed to produce credible records supporting any greater deductions of COGS. Petitioner, in fact, concedes in his posttrial brief t

473, 482 (1990), and a taxpayer such as petitioner bears the burden of proving the depreciable basis in property, see Rule 142(a).4 Section 6001 mandates that taxpayers keep permanent records sufficient to establish their claims to all deductions.

Income Tax Deficiencies If a taxpayer fails to maintain adequate records of income as required under section 6001, the Commissioner may reconstruct his income by any reasonable method that clearly reflects income.

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965); Treas. Reg. § 1.6001-1(a). A taxpayer is required to maintain records sufficient to enable the Commissioner to determine the correct tax liability. See § 6001; Treas. Reg. § 1.6001-1(a).

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer’s correct tax liability. I.R.C. § 6001; Hradesky, 65 T.C. at 89–90. When a taxpayer establ

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. - 14 - Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer is required to maintain and produce records sufficient to enable the Commissioner to determine the taxpayer’s correct tax liabili

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer is required to maintain records sufficient to enable the Commissioner to determine his correct tax liability. Sec. 6001; sec. 1.6001-1(a),

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. Through informal and formal discovery, respondent repeatedly requested production ofdocuments substantiating petitioner's offset to gross receipts, each category ofclaimed expense deductions, and the claimed capital losses. After petitioner rep

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C.

These records should be-sufficientto establish the amount ofthe gross income or other items shown on the tax return. Sec. 1.6001-1(a), Income Tax Regs. The taxpayeFshall retain these records as long as they may become material in the administration ofthe Internal Revenue Code. Sec. 1.6001- 1(e), Income Tax Regs. II. Unreported Income Sec

6001; Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). A taxpayer claiming an NOL deduction bears the burden of substantiating the NOL by establishing both the existence ofthe NOL and the amount ofany NOL that may be carried over to the subject years. Rule 142(a)(1); United States v. Olympic Radio & Television, Inc., 349 U.S. 232,

6001; Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). A taxpayer claiming an NOL deduction bears the burden of substantiating the NOL by establishing both the existence ofthe NOL and the amount ofany NOL that may be carried over to the subject years. Rule 142(a)(1); United States v. Olympic Radio & Television, Inc., 349 U.S. 232,

6001; Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). A taxpayer claiming an NOL deduction bears the burden of substantiating the NOL by establishing both the existence ofthe NOL and the amount ofany NOL that may be carried over to the subject years. Rule 142(a)(1); United States v. Olympic Radio & Television, Inc., 349 U.S. 232,

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). This is an affirmative duty placed on the taxpayer, and - 8 - [*8] an unexplained failure to maintain adequate records is no defense to the duty to file a required return. S_ee Smith v. Commissioner, T.C. Memo. 1998-143, 75 T.C.M. (CCH)215

Section 6001 requires taxpayers to keep records long enough to properly substantiate items they claim on their returns. Petitioners have failed to do so and are accordingly liable for the 20% penalty on the portion of their 2005 underpayment resulting from the unsubstantiated basis increase. To reflect the foregoing, Decision will be entered under

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo.v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

sold; and (3) recharacterizing Cedar Valley's income accordingly.' These adjustments stem largely from Cedar Valley's failure to properly substantiate the income and expenses reported on its partnership returns for the years at issue as required by section 6001.2 Thus, after concessions,3 the primary issue for decision is whether Cedar Valley properly reported its income and expenses for 2002, 2003, and 2004.4 'Respondent's adjustments included computational adjustments that are not directly in

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutoryprovision and must further substantiate that the

To shift the burden, taxpayers must comply with substantiation requirements, maintain all the records that section 6001 requires, and cooperate with the Commissioner's reasonable requests.

Additionally, section 6001 requires all taxpayers to keep records oftheir activities in a manner that.will enable the determination ofthe correct amount ofincome subject to tax.

Lack ofrecords Section 6001 requires that- Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Section 6001 requires that “[e]very person liable for any tax imposed by this title * * * shall keep such records * * * as the Secretary may from time to time prescribe”, and section 6011(a) requires that a return be filed by “any person made liable for any tax imposed by this title”. For taxpayers who are entitled to refundable credits, these requ

The record-keeping requirements for the income tax are set forth in section 6001, which requires that- Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

1.6001-1(a), Income Tax Regs. Even though we may estimate the amount ofan expense where taxpayers introduce evidence demonstratingthatthey paid or incurred a deductible expense but cannot substantiate the precise amount, see Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930), we decline to do so here because petitioners have not

The record-keeping requirements for the income tax are set forth in section 6001, which requires that- Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Section 6001 requires that taxpayers keep books and records which are sufficient to establish (among other things) their gross income, deductions, and credits and which allow the Commissionerto verify their correct tax liability. See Olive v. Commissioner, 139 T.C. _, __(slip op. at 23) (Aug. 2, 2012); Campbell v. Commissioner, 134 T.C. 20, 28 (201

6001; INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. As a general rule, the Commissioner's determination of a taxpayer's liability in the notice of deficiency is presumed correct, and the taxpayer bears the burden of proving that the determination is improper. See Rule 142(a); Welch v. Helvering, 290 U

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). As in this case, when the taxpayer fails to maintain adequate books and r cords, the Commissioner>is authorized to use whatever method he d ems appropriate to determine the existence and amount of the ta payer's income so long as it clearly re

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965)., A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that th

Section 162(a) authorizes a deduction for "all the ordinary and.necessary expenses paid or incurred during the taxable year in carrying on any trade.or business". A trade or business expense is ordinary for purposes of section 162 if it is normal - 7 - or customary within a particular trade, business, or industry, and is necessary if it

1.6001- 1(a), (e), Income Tax Regs . Deductions are a matter of legislative grace, and taxpayers generally have the burden of proving they are entitled to the deductions claimed . Rule 5 _ 142(a) ; INDOPCO, Inc . v. Commissioner, 503 U .S . 79, 84 (1992) . These are largely substantiation cases, nd the burden of proof as to petiti

The Form 886-A also states that petitioner "must establish that [his claimed deductions have] met all requirements of the law ." This substantially corresponds both with the language of section 6001 and the regulations issued thereunder, and the principles underlying section 6001 .

oners bear the burden of proof . B. Uhreported .Income Grioss income includes 11 income from whatever source derived, sec. 61 (a), and taxpayers are; required to keep books and records sufficient to establish their iFederal income tax liability, see sec. 6001; see also sec. 1 .6001- 1(b), Income Tax Regs . Where taxpayers have not maintained adequate business . records to establish such liability , the Commissioner may reconstruct income by any method that the Commissioner believes reflects inco

Section 6001 requires taxpayers to maintain adequate records from which their correct tax liability may be determined . Petzoldt v. Commissioner, 92 T .C . 661, 686 (1989) . The only documentation petitioner provided to substantiate his basis in KCP was the handwritten statement, a typed statement which contradicted the handwritten statement, and h

a master's degree in accounting with a concentration in taxation from Long Island University, was employed full time by the Internal Revenue Service as a revenue agent . At all relevant times, Mr . Agbaniyaka was familiar with the requirements of section 6001 . During the years 2001 through 2003, the State of New York correctional system employed petitioner Linda L . Agbaniyaka (Ms . Agbaniyaka) . In 2003, Ms . Agbaniyaka was diagnosed with a tumor behind her right eye . During that year, Ms .

Section 6001 requires a taxpayer to maintain records that are sufficient to enable the Commissioner to determine his or her correct tax liability . See also sec. 1 .6001-1(a), Income Tax 5 A Form 5498, IRA Contribution Information, is issued by a third party that maintains a Roth IRA for the taxpayer . As its name suggests, the Form 5498 shows the

’s processing facility.” Respondent emphasizes petitioner’s status in the industry and its employment of in-house and outside accountants and tax preparers “who were well aware of the record keeping requirements of the Internal Revenue Code.” - 7 - Section 6001 requires taxpayers to “keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.” Section 1.6001-1(a), Income Tax Regs., requires the taxpaye

6001; New Colonial Ice Co. v. Helvering, supra at 440. In the case of meals and traveling expenses, section 274(d) disallows deductions for those expenses, unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement: (1) The amount of the expense; (2) the time and place of the expe

Section 6001 requires taxpayers to maintain records sufficient to determine their correct Federal income taxes. Petzoldt v. Commissioner, 92 T.C. 661, 686 (1989). If taxpayers fail to maintain or do not produce adequate books and records, respondent is authorized by section 446 to reconstruct the taxpayers’ income. Sec. 446(b); Petzoldt v. Commissi

Section 6001 requires that taxpayers maintain books and records sufficient to establish 14 These amounts include both ordinary farm income and capital gains income. Respondent asserts that petitioner’s capital losses will offset the capital gains income, and the capital gains income will not result in additional tax. 15 Petitioner asserts that he d

1.6001-1(a), Income Tax Regs. A taxpayer must also produce those records upon request for inspection by authorized internal revenue officers or employees. Sec. 7602(a); sec. 1.6001-1(e), Income Tax Regs. We are not required to accept an interested party’s self-serving testimony that is uncorroborated by persuasive evidence. See Toka

Section 6001 provides that a taxpayer must substantiate any deductible expenses claimed. Taxpayers are required to maintain records that sufficiently establish the amount of claimed deductions. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. When taxpayers present convincing evidence that they incurred deductible expenses, but lack the records to sub

Runkle advised Revenue Agent Andrews that he had researched section 6001 and there was no requirement to file a tax return under section 6001.

Section 6001 provides that a taxpayer must substantiate any deductible expenses claimed. Taxpayers are required to maintain records that sufficiently establish the amount of claimed deductions. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. When taxpayers present convincing evidence that they incurred deductible expenses, but lack the records to sub

1.6001-1, Income Tax Regs. In this case, petitioner bears the burden of showing that respondent's determination is in error.6 Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Because the disputed items of income adjustments concern several different sources, we examine each source separately. I. Coupon and Buy-Down Income

1.6001-1(a), Income Tax Regs. Deductions are a matter of legislative grace, and generally the taxpayer bears the burden of proving entitlement to any deduction claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The burden of proof has not shifted to respondent pursuant to section 7491(a). While examination

1.6001-1(a), Income Tax Regs. Section 162(a) requires a taxpayer to prove that the expenses deducted (1) were paid or incurred during the taxable year, (2) were incurred to carry on the taxpayer’s trade or business, and (3) were ordinary and necessary expenditures of the business. See also Commissioner v. Lincoln Sav. & Loan Associa

1.6001-1(a), (e), Income Tax Regs. Petitioners’ position regarding the farming losses and the general business credits is unclear. Because their arguments focus on the amount of money that they invested in the Hoyt partnership rather than on the items appearing on their returns, and because petitioners admit that they do not know ho

1.6001-1(a), (e), Income Tax Regs. Petitioners’ position regarding the farming losses and the general business credits is unclear. Because their arguments focus on the amount of money that they invested in the Hoyt partnership rather than on the items appearing on their returns, and because petitioners admit that they do not know ho

1.6001-1(a), Income Tax Regs. Accordingly, respondent’s use of the direct and indirect income reconstruction 2 At trial respondent discovered that the revised deficiency for 1983 in his amendment to answer should have been increased rather than decreased. In his brief, respondent asks the Court to rely on the original deficiency in

Section 6001 requires taxpayers to keep adequate records. The regulations promulgated under that section provide: Records. (a) In general. * * * any person subject to tax under subtitle A of the Code * * * or any person required to file a return of information with respect to income, shall keep such permanent books of account or records, including

ient records to substantiate the deduction. 2 Petitioner testified that he believed that gambling winnings less than $600 are not includable in a taxpayer’s gross income. -7- See New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. We hold that petitioner is not entitled to deduct any of his claimed gambling losses. Decision will be entered under Rule 155.

Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). When a taxpayer fails to maintain these records, respondent may determine income under the bank deposits method. Id. A bank deposit is prima facie evidence of income. Id. at 868; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). The bank deposits method of r

Section 6001 requires a taxpayer to maintain books of account or records sufficient to establish his gross income, deductions, and credits. Sec. 1.6001-1(a), Income Tax Regs.; see also Estate of Mason v. Commissioner, 64 T.C. 651, 656 (1975), affd. 566 F.2d 2 (6th Cir. 1977). When a taxpayer fails to keep adequate records, - 7 - the Commissioner m

1.6001-1(a), Income Tax Regs. Accordingly, respondent’s use of the direct and indirect income reconstruction 2 At trial respondent discovered that the revised deficiency for 1983 in his amendment to answer should have been increased rather than decreased. In his brief, respondent asks the Court to rely on the original deficiency in

1.6001-1(a) and (b), Income Tax Regs. If such records are lacking, the Commissioner may reconstruct the taxpayer's income by any indirect method that is reasonable under the circumstances. Cebollero v. Commissioner, 967 F.2d 986, 989 (4th Cir. 1992), affg. T.C. Memo. 1990-618; Petzoldt v. Commissioner, 92 T.C. 661, 687 (1989); Schel

1.6001- 1(a), Income Tax Regs. Petitioner conceded that some expenses paid from his business bank account were not for business purposes. Petitioner presented no evidence to establish the business purpose of this payment. Accordingly, we hold that petitioner is not allowed to deduct the payment to Consolidated Electrical Distributor

1.6001- 1(a), Income Tax Regs. Petitioner conceded that some expenses paid from his business bank account were not for business purposes. Petitioner presented no evidence to establish the business purpose of this payment. Accordingly, we hold that petitioner is not allowed to deduct the payment to Consolidated Electrical Distributor

OPINION Petitioner’s Failure To Report $170,619 of Income in 1996 Section 6001 provides that “Every person liable for any tax imposed by this title, or the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.” Section 1.6001-1(a), Income Tax Regs., requires any person required to file a

siness expense - 8 - deductions on the grounds that petitioner did not prove that he incurred the expenses pursuant to section 162(a), and that he did not maintain adequate records to establish the specific amounts of the deductions as required by section 6001. 1. Travel Expenses Section 162 allows taxpayers to deduct the “ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including * * * traveling expenses * * * while away from home”.

Nevertheless, a taxpayer is required by section 6001 to keep records and to substantiate the amounts giving rise to claimed deductions, and, if he does not, respondent cannot be considered arbitrary or unreasonable in denying the deductions.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), affd. 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. Additionally, statements made on a tax return signed by the taxpayer have long been considered admissions, and such admissions are binding on the taxpayer absent cogent evidence indicating they are wrong. Waring v. C

1.6001-1(a), Income Tax Regs.6 If 4Unless indicated otherwise, all Rule references are to the Tax Court Rules of Practice and Procedure. 5Sec. 6001 provides, in pertinent part, as follows: SEC. 6001. NOTICE OR REGULATIONS REQUIRING RECORDS, STATEMENTS, AND SPECIAL RETURNS. Every person liable for any tax imposed by this title [titl

1.6001-1(a), Income Tax Regs. When a taxpayer establishes that he paid or incurred a deductible expense, but does not establish the amount of the deduction, we may estimate the amount allowable in some circumstances. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). There must be sufficient evidence in the record, howe

6001; Wright v. Commissioner, T.C. Memo. 1993-27. - 6 - Petitioner claims that he was involved in the computer chip sales business, and that he is entitled to reduce his Schedule C gross receipts by the cost of the computer chips. As an initial matter, we must determine whether petitioner was in the business of purchasing and reselling comput

1.6001-1(a), Income Tax Regs. When a taxpayer establishes that he paid or incurred a deductible expense but does not establish the amount of the - 5 - deduction, we may estimate the amount allowable in some circumstances. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). There must be sufficient evidence in the record

Section 6001 requires that a taxpayer liable for any tax shall maintain such records, render such statements, make such returns, and comply with such regulations as the Secretary may from time to time prescribe. To be entitled to a deduction, therefore, a taxpayer is required to substantiate the deduction through the maintenance of books and record

Section 6001 requires that a taxpayer liable for any tax shall maintain such records, render such statements, make such returns, and comply with such regulations as the Secretary may from time to time prescribe. To be entitled to a deduction, therefore, a taxpayer is required to substantiate the deduction through the maintenance of books and record

Section 6001 requires all taxpayers to maintain adequate books and records of taxable income. In the absence of adequate records, the Commissioner is authorized to reconstruct a taxpayer's income by any reasonable method that clearly reflects the taxpayer's income. See sec. 446(b); see also Holland v. United States, 348 U.S. 121, 130-132 (1954); Wi

6001; Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Therefore, we hold that petitioner is not entitled to claim miscellaneous itemized deductions in excess of the amount conceded by respondent. Section 6662(a) imposes a penalty of 20 percent of the portion of the underpayment which is attributable t

Section 6001 requires that a taxpayer liable for any tax shall maintain such records, render such statements, make such returns, and comply with such regulations as the Secretary may from time to time prescribe. To be entitled to a deduction, therefore, a taxpayer is required to substantiate the deduction through the maintenance of books and record

Section 6001 provides that a taxpayer must keep records that suffice to establish the amount of the claimed deductions. Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred during the taxable year in carrying on a trade or business. In the instant case, petitioner claimed Schedule C deductions of $27,7

- 11 - Section 6001 requires taxpayers to maintain adequate records to determine their correct tax liabilities. Absent adequate records, or if the records that are kept do not accurately reflect income, the Commissioner may determine the existence and amount of a taxpayer's income by using any method that clearly reflects income.5 Sec. 446(b); United Stat

Section 6001 requires generally that a taxpayer liable for any tax shall maintain such records, render such statements, make such returns, and comply with such regulations as the Secretary may from time to time prescribe. While petitioner testified that he incurred certain expenses, he concluded that he incurred a loss in his business in the amount

Section 6001 requires a taxpayer to maintain adequate records supporting the amount of gross income, deductions, credits, and other matters required to be shown on his income tax return. See sec. 1.6001-1(a), Income Tax Regs. We find that petitioner failed to keep adequate records relating to his cash receipts from Lighthouse as required by section

Discussion Section 6001 requires all taxpayers to maintain adequate books and records of taxable income.

Respondent's Reconstruction of Income Section 6001 requires all taxpayers to maintain adequate books and records of taxable income.

Section 6001 requires all taxpayers to maintain sufficient records to determine their correct tax liability. See Petzoldt v. Commissioner, supra at 686. If a taxpayer fails to maintain or does not produce adequate books and records, the Commissioner is authorized by section 446 to reconstruct the taxpayer's income. See sec. 446(b); Petzoldt v. Comm

6001; Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A. Unreimbursed Employee Expenses Section 162(a) permits the deduction of "ordinary and necessary" expenses paid or incurred during the taxable year in carrying on any trade or business. The performance of services as an employee constitutes a trad

t established that they acted with reasonable cause and in good faith in relying on their accountants to prepare their tax returns for the years in issue; they have also failed to demonstrate that they maintained books and records in accordance with section 6001. Consequently, we hold that petitioners are liable for the accuracy- related penalty pursuant to section 6662 for each of the years in issue. To reflect the foregoing, Decision will be entered for respondent.

Section 6001 requires all taxpayers to maintain adequate books and records of taxable income. In the absence of adequate records, the Commissioner is authorized to reconstruct a taxpayer's income by any reasonable method that clearly reflects the taxpayer's income. Sec. 446(b); Holland v. United States, 348 U.S. 121, 130-132 (1954); Cracchiola v. C

Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). Section 6001 provides: SEC. 6001. NOTICE OR REGULATIONS REQUIRING RECORDS, STATEMENTS, AND SPECIAL RETURNS. Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such retu

Section 6001 requires that a taxpayer liable for any tax shall maintain such records, render such statements, make such returns, and comply with such regulations as the Secretary may from time to time prescribe. To be entitled to a deduction under section 162(a), therefore, a taxpayer is required to substantiate the deduction through the maintenanc

Section 6001 requires all taxpayers to maintain adequate books and records of taxable income. In the absence of adequate records, the Commissioner is authorized to reconstruct a taxpayer's income by any reasonable method that clearly reflects the taxpayer's income. Sec. 446(b); Holland v. United States, 348 U.S. 121, 130-132 (1954); Cracchiola v. C

Petitioner kept no accounting records; section 6001 requires taxpayers to maintain adequate records from which their tax liability can be determined.

Where a taxpayer fails to produce or maintain adequate records from which actual income may be ascertained, the Commissioner may reconstruct a taxpayer's income by any method that clearly reflects income. Sec. 446(b); Goodmon v. Commissioner, 761 F.2d 1522, 1524 (11th Cir. 1985); Petzoldt v. Commissioner, 92 T.C. 661, 687, 693 (1989). Th

Section 6001 requires taxpayers to maintain records to support positions taken on their Federal income tax returns. In this case, petitioner failed to produce any documentary evidence to support the positions taken on his return, with respect to the alleged rental payments, other than the amounts reported as rental income on the returns of related

Section 6001 provides that a taxpayer has an obligation to maintain adequate books and records. Petitioner did not maintain adequate books and records and failed to exercise due care in reporting his income. Accordingly, we hold that he is liable for the section 6653(a) addition to tax and section 6662 accuracy-related penalties. All other argument

The meager records petitioner presented to substantiate the expenses at issue do not satisfy the recordkeeping requirements of section 6001 and do not prove that the expenses claimed were paid or incurred.

1.6001-1, Income Tax Regs. In addition, petitioner failed to provide his tax adviser and return preparer with the records he did maintain. Petitioner's conviction under section 7206(1) is also probative that petitioner intended to evade taxes for 1982 and 1983. Wright v. Commissioner, 84 T.C. 636, 643-644 (1985). For the reasons sta

Section 6001 requires taxpayers to keep books and records adequate to substantiate their income and deductions. See sec. 1.6001-1(a), Income Tax Regs. If the trial record provides sufficient evidence that a taxpayer has incurred a deductible expense, but the taxpayer is unable to adequately substantiate the amount of the deduction to which he or sh

If the taxpayer fails to maintain such records, the Commissioner may reconstruct income in accordance with a method that clearly reflects income. Sec. 446(b); Meneguzzo v. - 8 - Commissioner, 43 T.C. 824, 831 (1965). When the Commissioner has evidence of taxable income but does not have information available to ascertain the amount of s

Further, section 6001 requires, in pertinent part, that "Every person liable for any tax * * * shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe." Section 1.6001-1(a), Income Tax Regs., provides, in pertinent part, that "any person subject to tax un

6001; - 7 - Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Moreover, a taxpayer who claims a deduction bears the burden of substantiating the amount and purpose of the item claimed. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Inco

Additional Income Section 6001 requires taxpayers to maintain records sufficient to establish the amount of their gross income and deductions.

Section 6001 requires that Every person liable for any tax imposed by this title * * * shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. * * * Section 1.6001-1(a), Income Tax Regs., provides that any person subject to tax under subtitle A

Section 6001 requires that a taxpayer liable for any tax shall maintain such records, render such statements, make - 4 - such returns, and comply with such regulations as the Secretary may from time to time prescribe. (a) Claimed Rent Expense Section 162(a)(3) allows a taxpayer to deduct rental expenses incurred in connection with a trade or busin

Bank Deposits Section 6001 requires each taxpayer to maintain records sufficient to establish the amount of his gross income and deductions.

1.6001-1, Income Tax Regs. In addition, petitioner failed to provide his tax adviser and return preparer with the records he did maintain. Petitioner's conviction under section 7206(1) is also probative that petitioner intended to evade taxes for 1982 and 1983. Wright v. Commissioner, 84 T.C. 636, 643-644 (1985). For the reasons sta

In addition, section 6001 requires the taxpayer to keep records sufficient to show whether or not the person is liable for tax.

Section 6001 requires the taxpayer to keep records sufficient to show whether or not the person is liable for tax. Where a taxpayer fails to produce any records to substantiate his or her deductions, disallowance of the claimed deductions is proper. Williams v. Commissioner, T.C. Memo. 1986-195. According to petitioner, the farming activity was a c

1.6001-1(a), Income Tax Regs. Even though a taxpayer fails to maintain adequate records, under some circumstances we may estimate the amount a taxpayer is entitled to deduct if he provides a means of making a reasonable estimate of the expense. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). However, in order for us to make an es

Section 6001 requires taxpayers to maintain 8 Petitioners' position at trial was that they paid DiCaro $8,993 in 1990, and they are seeking to deduct the entire payment. - 2211 - adequate records from which their tax liability may be determined. Petzoldt v. Commissioner, 92 T.C. 661, 686 (1989). Petitioners have failed to establish that they are e

Unreported Income Section 6001 requires taxpayers to maintain sufficient records to determine their correct tax liabilities.

Section 6001 requires taxpayers to maintain adequate records from which their tax liability may be determined. Petzoldt v. Commissioner, 92 T.C. 661, 686 (1989). Petitioners offered no evidence or argument concerning the $10,105 of deductions taken for an undetermined rental activity. We hold that petitioners have abandoned that portion of the subs

Section 6001 requires all taxpayers to maintain sufficient records to enable respondent to determine their correct tax lia- bilities. In the absence of adequate books or records, "the com- putation of taxable income shall be made under such method as, in the opinion of the Secretary, does clearly reflect income." Sec. 446(b). The choice of method t

Additionally, section 6001 requires petitioner to keep records sufficient to show whether he is liable for tax.

Petitioners did not maintain books and records as required by section 6001 to substantiate other deductions and, in particular, expenses subject to section 274(d).

Section 6001 requires taxpayers to maintain adequate records from which their tax liability may be determined. Petzoldt v. Commissioner, 92 T.C. 661, 686 (1989). Respondent conceded that petitioner paid $378 to the State Bank of Standish in 1992 on an installment loan. Petitioner's testimony established that the interest was an ordinary and necessa

§ 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Treas. Reg. § 1.6001-1(a). Taxpayers must retain records so long as their contents might become material in the administration of the Code. See Treas. Reg. § 1.6001-1(e). Under certain circumstances the burden of proof shifts from the taxpayer to the Commissioner. See I.R.C. § 7491(a)

§ 1.6001-1(a). Section 274(d) imposes heightened substantiation requirements for certain types of expenses. Among these are expenses related to “listed property” (as defined in section 280F(d)(4)), which includes “any passenger automobile,” and 7 [*7] generally requires the taxpayer to “maintain an account book, diary, log, sta

These records should be sufficient to establish the amount of the gross income or other matters shown on the tax return. Treas. Reg. 6 [*6] § 1.6001-1(a). Taxpayers shall retain these records as long as they may become material in the administration of the Code. Id. para. (e) If a taxpayer with inadequate records proves that he incu

§ 6001; Treas. Reg. § 1.6001-1(a). Such records must substantiate both the amount and purpose of the related expense. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). II. Noncash Charitable Deduction A taxpayer may deduct charitable contributions made during a taxable year. I.R.C. § 170(a)(1). However, deductions for charitable contribution

See § 6001; Interex, Inc. v. Commissioner, 321 F.3d 55, 58 (1st Cir. 2003), aff’g T.C. Memo. 2002-57; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). II. Evaluation of Evidence In deciding whether taxpayers have carried their burden of proof, witness credibility is an import

When a taxpayer does not keep accurate books and records, the IRS may reconstruct his income “under such method as, in the opinion of the Secretary, does clearly reflect in- come.” § 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Such reconstruction “need only be reasonable in light of all surrounding facts and circumstances

Deductions are matters of legislative grace, and the taxpayer must show his entitlement to any deductions claimed and substantiate their amounts.7 § 6001; Rule 142(a); INDOPCO, Inc.

§ 1.6001-1(a). If the taxpayer fails to do so, the Commissioner may reconstruct income through any reasonable method that clearly reflects income. See § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The reconstruction need only be reasonable in view of the surrounding facts and circumstances. See Petzoldt, 92 T.C. a

See §§ 6001, 446(b); Parks v. Commissioner, 94 T.C. 654, 658 (1990). It assumes all money deposited into a taxpayer’s bank account during a period is taxable except for deposits that are transfers between accounts or that the agent concludes are otherwise nontaxable. Courts treat a valid bank-deposits analysis as prima facie evidence of income. See Toka

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 5 In 2017 petitioner claimed other itemized deductions on his Schedule A, including state and local taxes paid and gifts to charity; however, these itemized deductions were not examined by IRS. 6 On brief respondent fails to address whether the substantial valuatio

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). If, in any court proceeding, the taxpayer puts forth credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer and meets certain other requirements, the burden

Commissioner, 116 T.C. 438, 440 (2001). In the case of an NOL deduction, this burden requires the taxpayer to substantiate the NOL deduction by establishing both the existence of the NOL and the amount that may be carried over to the year in question. United States v. Olympic Radio & Television, Inc., 349 U.S. 232, 235 (1955); Kei

Commissioner, T.C. Memo. 2021-52, at *10 (“Any amount claimed as cost of goods sold must be substantiated, and taxpayers are required to maintain records sufficient for this purpose.”). We therefore find that petitioners have 12 We excluded from evidence a purported promissory note memorializing the loan (Exhibit 48-P) as it was ex

“Fail[ing] to keep or produce adequate records to support . . . tax return positions” is an indicator of fraud. Scott v. Commissioner, T.C. Memo. 2012-65, 103 T.C.M. (CCH) 1310, 1317. Although Mrs. Beleiu admitted to being the recordkeeper and had bank signatory authority for both Remtrix and ITrainX, she did not create any contempor

§ 6001; Treas. Reg. § 1.6001-1(a); see also Treas. Reg. § 1.6001- 1(e) (“The books or records . . . shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.”). Adequate substantiation must establish the nature, amount, and purpose of a claimed deduction. See, e.g., Higbee v. Com

If a taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer’s income by any method that clearly reflects income. See § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); Treas. Reg. § 1.446-1(b)(1). The Commissioner’s reconstruction of income “need only be reasonable in lig

Commissioner, 116 T.C. 438, 440 (2001). 7 [*7] Petitioners contend that the burden of proof should shift to respondent under section 7491(a) or (b) with respect to certain factual issues underlying the IRS’s determinations that Mr. Anderson had unreported income for the years at issue that should be treated as petitioners’ commun

In the alternative, the Commissioner determined that the underpayment was attributable to negligence or disregard of rules or regulations within the meaning of section 6662(b)(1).

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). Under section 7491(a), if a taxpayer provides credible evidence concerning a factual issue relevant to ascertaining the taxpayer’s tax liability and complies with certain other requirements, the burden of proof shif

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). 8 [*8] II. Evaluation of Evidence In deciding whether a taxpayer has carried her burden of proof, witness credibility is an important consideration. Ishizaki v. Commissioner, T.C. Memo. 2001-318, 2001 WL 1658189, a

Commissioner, 116 T.C. 438, 440 (2001). 1. Executor’s Commissions Treasury Regulation § 20.2053-3(b) allows for the deduction of executor’s commissions paid or reasonably expected to be paid at the 15 [*15] time of filing the estate tax return. If this amount is not fixed by court decree, the deduction is allowed to the extent th

§ 1.6001-1(a); see also Treas.

§ 6001; Treas. Reg. § 1.6001-1(a); see also Treas. Reg. § 1.6001-1(e) (“The books or records . . . shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.”). Adequate substantiation must establish the nature, amount, and purpose of a claimed deduction. See, e.g., Higbee v. Comm

§ 1.6001-1(a). Mr. Ataya’s routine of designating unused cashier’s checks to be held for future deposit and returning unused checks to a drawer in the company’s office might have been reasonable if additional controls had been used to substantiate the returns, but it falls short of this requirement on its own. This is especially

See § 6001; Rule 142(a); Treas. Reg. § 1.6001-1(a). She also failed to establish that the remaining $26,291 of litigation expenses relate to the production or collection of income. See §§ 212(1), 262(a); Rule 142(a); United States v. Gilmore, 372 U.S. 39, 46–49 (1963). Accordingly, respondent’s disallowance of the deduction is sustained. Contentions we

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965); Treas. Reg. § 1.6001-1(a). A taxpayer is required to maintain records sufficient to enable the Commissioner to determine the correct tax liability. See I.R.C. § 6001; Treas. Reg. §

Commissioner, 116 T.C. 438, 440 (2001); Treas. Reg. § 1.6001- 1(a). When a taxpayer presents some credible evidence that provides a rational basis for the Court to estimate the amount of an expense, the Court may estimate the amount under the Cohan rule. Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930); see Vanicek v. Com

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). Under section 7491(a), if the taxpayer provides credible evidence concerning any factual issue relevant to ascertaining the taxpayer’s liability and complies with certain other requirements, the burden of proof shif

§ 6001; see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Normally, the Court may estimate the amount of a deductible expense if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742–43 (

§ 6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The failure to keep and present accurate records counts heavily against a taxpayer’s attempted proof. See Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Unless specifically enumerated in the Code, no deductions are allowed for personal, living, or family expenses. See I.R.C. § 262

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. 6 [*6] Section 162(a) allows a deduction for “ordinary and necessary ex- penses paid or incurred during the taxable year in car

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). If, in any court proceeding, the taxpayer puts forth credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer and meets certain other requirements, the 8 The

When a taxpayer does not keep accurate books and records, the IRS may reconstruct his income “under such method as, in the opinion of the Secretary, does clearly reflect in- come.” § 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Such reconstruction “need only be reasonable in light of all surrounding facts and circumstances

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s 7 [*7] attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43.2 Section 162(a) allows a deduction for “ordinary and necessary ex- penses paid or incurred during the taxable year in ca

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). Under section 7491(a), if the taxpayer provides credible evidence concerning any factual issue relevant to ascertaining the taxpayer’s liability and complies with certain other requirements, the burden of proof shif

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). If, in any court proceeding, the taxpayer puts forth credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer and meets certain other requirements, the burden of pro

§§ 6001, 162(a); Treas. Reg. § 1.6001-1(a); see also Boyd v. Commissioner, 122 T.C. 305, 319–20 (2004). The taxpayer’s returns alone do not substantiate its deductions because returns are merely statements of a taxpayer’s claims. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979). In general, a taxpayer is required to maintain records that are suffi

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

See § 6001; Estate of Mason v. Commissioner, 64 T.C. 651, 656 (1975), aff’d 50 Robert contends that we should not credit the RA’s testimony. In his view, her request that Mr. Little “backdate” a Form 2848 indicates that she is untrustworthy, and her unwillingness to accept Robert’s explanations of issues raised during her examinations reveals a bias ag

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s at- tempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. Section 162(a) allows a deduction for “ordinary and necessary ex- penses paid or incurred during the taxable year in carrying

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). 9 [*9] tax purposes, we find the Spiezios are not entitled to claim an NOL on their personal return in tax year 2017. Whether R&S was a disregarded entity is irrelevant here because R&S did not make any payments toward the Pension Lia

May 17, 2024); see also Barrios v.

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). If, in any court proceeding, the taxpayer puts forth credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer and meets certain other requirements, the burden

§§ 6001, 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); Treas. Reg. § 1.6001-1(a). 8 [*8] When a taxpayer fails to do so, the Commissioner may reconstruct its income by examining its bank deposits. See Estate of Hague v. Com- missioner, 132 F.2d 775 (2d Cir. 1943), aff’g 45 B.T.A. 104 (1941); DiLeo v. Commissioner, 96 T.C. 858, 881 (199

§ 1.6001-1(a); see Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Roberts v. Commissioner, 62 T.C. 834, 836 (1974). If a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount, the Court may estimate the allowable amount (Cohan rule

§ 1.6001-1(a). 23 [*23] II. Analysis A. Income from cancellation of indebtedness The business income at issue is not in dispute, so we do not discuss it further. The only disputed income is from cancellation of indebtedness, totaling $322,459 in 2011 and 2012. Gross income generally includes income from the discharge of indebte

Failing “to keep or produce adequate records to support . . . tax return positions” is an indicator of fraud. Scott v. Commissioner, T.C. Memo. 2012-65, 103 T.C.M. (CCH) 1310, 1317. The Commissioner argues that this badge is supported because petitioners “presented documents which were altered (the Unit Purchase Agreement), backdated

§ 1.6001-1(a). If they fail to do so, the Commissioner may reconstruct income through any reasonable method that clearly reflects income. See § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). We have long accepted the bank deposits method for this purpose. See Clayton v. Commissioner, 102 T.C. 632, 645–46 (1994). The

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). Depreciation Section 167(a) allows a deduction for depreciation of property used in a trade or business. To substantiate entitlement to a depreciation deduction, a taxpayer must inter alia establish a property’s depreciable basis by showing i

§ 6001; Rob- erts, 62 T.C. at 836. Failure to keep and present such records counts heavily against a taxpayer’s attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. A. Capitalized Costs Respondent agrees that petitioners are entitled to deduct ex- penses properly allocable to the home office through which petitione

See § 6001; 34 [*34] Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified condi- tions. Among these conditions are that the taxpayer must have “int

ecessary expenses paid or incurred during the taxable year in carrying on any trade or business.” When called upon by the Commissioner, a taxpayer must substantiate his expenses. See, e.g., Akey v. Commissioner, T.C. Memo. 2015-227, at *20; see also § 6001; Treas. Reg. § 1.6001-1(a). In deciding whether a taxpayer has satisfied his or her burden of substantiating a deduction, we are not required to accept the taxpayer’s testimony. See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). Moreover, ce

§ 1.6001-1(a). III. Deduction for Medical Expenses Section 213(a) allows as a deduction “the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, [her] spouse, or a dependent,” to the extent such expenses exceed 7.5% of adjusted gross income. See also § 213(f)(2)

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). III. Evaluation of Evidence In deciding whether a taxpayer has carried his burden of proof, witness credibility is an important consideration. Ishizaki v. Commissioner, T.C. Memo. 2001-318, 2001 WL 1658189, at *7. “

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965); Treas. Reg. § 1.6001-1(a). Generally, a taxpayer is required to maintain records sufficient to enable the Commissioner to determine the correct tax liability. See § 6001; Treas. Reg. § 1.

§ 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). 9 Mr. Ottuso does not contend, nor does the evidence show, that the burden of proof has shifted to the Commissioner under section 7491(a) with respect to any factual issue. 10 We follow

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

Commissioner, 65 T.C. 87, 89– 90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer’s correct tax liability. § 6001; Hradesky, 65 T.C. at 89–90. Under section 162(a) a deduction is

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). II. Evaluation of Evidence In deciding whether a taxpayer has carried her burden of proof, witness credibility is an important consideration. Ishizaki v. Commissioner, T.C. Memo. 2001-318, 2001 WL 1658189, at *7. “[

Income Reconstruction If a taxpayer fails to maintain adequate records of income as required under section 6001, the Commissioner may reconstruct his income by any reasonable method that clearly reflects income.

§ 6001; Treas. Reg. § 1.6001-1(a). The burden of showing entitlement to a claimed deduction is on the taxpayer. See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).6 If a taxpayer clearly shows that she incurred a deductible expense but is unable to substantiate the exact amount, the “Cohan rule” permits the Court to estim

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). The taxpayer generally must keep sufficient records to substantiate the amount and business purpose of the expense giving rise to the claimed deduction to enable the IRS to determine the taxpayer’s correct tax liability. § 6001. Section 172 a

§ 1.6001-1(a). Midwest Medical has the burden to meet the requirements of section 162(a) and to substantiate any amounts reported as expenses. A. Depreciation Expense Section 167(a) allows as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear of property used in a trade or business or held for the

§ 1.6001-1(a). Bank deposits are prima facie evidence of income. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Bolles v. Commissioner, T.C. Memo. 2019-42, at *14. The bank deposits method of proof assumes that all deposits into a taxpayer’s bank account during a given period constitute taxable income unless the taxpayer can s

§ 1.6001-1(a); see also Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). In certain instances, however, the Commissioner bears the burden of proof. Notwithstanding, Mr. Tibin has not argued or established that the burden of proof has shifted to respondent pursuant to section 749

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). Generally, an S corporation shareholder determines his or her tax liability by taking into account a pro rata share of the S corporation’s income, losses, deductions, and credits. § 1366(a)(1).4 Section 172 permits a deduction for the full am

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965); Treas. Reg. § 1.6001-1(a). Taxpayers are required to maintain records sufficient to enable the Commissioner to determine the correct tax liability. See § 6001; Treas. Reg. § 1.6001-1(a).

Failing “to keep or produce 18 [*18] adequate records to support . . . tax return positions” is an indicator of fraud. Scott v. Commissioner, T.C. Memo. 2012-65, 103 T.C.M. (CCH) 1310, 1317. For this badge the Commissioner states that “[t]he evidentiary record in this case is replete with examples of Mr. Simpson’s idiosyncratic and

§ 1.6001-1(a). The taxpayer may substantiate that he met the section 469(c)(7) hour requirement by any reasonable means. Temp. Treas. Reg. § 1.469-5T(f)(4). While contemporaneous records are not required, we have routinely held that a postevent “ballpark guesstimate” is not sufficient. Moss, 135 T.C. at 369. Mr. Warren does not

Commissioner, 65 T.C. 87, 89– 90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). Under section 7491(a), if the taxpayer provides credible evidence concerning any factual issue relevant to ascertaining the taxpayer’s liability and complies with certain other requirements, the burden of proof shi

If a taxpayer fails to do so, the Commissioner may determine the taxpayer’s income through any method that clearly reflects income. I.R.C. § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner’s reconstruction of income “need only be reasonable in light of all surrounding facts and circumstances.” Petzoldt, 92

§ 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Treas. Reg. § 1.6001-1(a). In the case of an individual section 469 generally disallows any current deduction for a passive activity loss. I.R.C. § 469(a)(1), (b). The effect of the passive activity loss disallowance rule is that a deduction related to a passive activity is allowed ag

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid o

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s attempted proof. See Valentine v. Commissioner, T.C. Memo. 2022-42, at *10. Section 162(a) allows a deduction for “ordinary and necessary expenses paid or incurred . . . in carrying on any trade or business.” See Co

When a taxpayer fails to do so, the IRS may reconstruct the taxpayer’s income under any method that, in its opinion, clearly reflects income. § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The IRS’s reconstruction of income “need only be reasonable in light of all surrounding facts and circumstances.” Petzoldt, 92 T.C. at 687.

When a taxpayer fails to do so, the IRS may reconstruct the taxpayer’s income under any method that, in its opinion, clearly reflects income. § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The IRS’s income reconstruction must be reasonable in the light of all surrounding facts and circumstances. Petzoldt, 92 T.C. at 687. A ban

Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). If the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining his federal income tax liability and meets certain other requirements, the burden of proof

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). If, in any court proceeding, the taxpayer puts forth credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer and meets certain other requirements, the 16 [*

§ 1.6001-1(a). When a taxpayer fails to substantiate his deductions, we may estimate, but only if he provides at least some evidence to support an estimate and we are convinced he incurred them. Finney v. Commissioner, 27 T.C.M. (CCH) 1510, 1516 (1968); see also Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957); Cohan

Commissioner, 116 T.C. 438, 440 (2001). Failure to keep and present such records counts heavily against a taxpayer’s at- tempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. During 2019 petitioners rented a room in their basement to a close friend who needed a place to stay, charging her modest rent

Commissioner, 116 T.C. 438, 440 (2001); Treas. Reg. § 1.6001- 1(a). VI. The Section 179D Deduction A. Governing Statutory Provisions Section 179D provides a deduction with respect to energy efficient commercial buildings. Ordinarily, when a taxpayer incurs expenses for improvements to buildings or other property, the taxpayer is r

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

Section 163(h)(1), however, provides that in the case of a taxpayer other than a corporation (i.e., an individual) no deduction is allowed for personal interest paid or accrued during the taxable year.

§ 6001; Treas. Reg. § 1.6001- 1(a). If they fail to do so, the Commissioner may reconstruct income through any reasonable method that clearly reflects income. I.R.C. § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). We have long accepted the bank deposits method for this purpose. Clayton v. Commissioner, 102 T.C. 632, 645–46 (1994

If a taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer’s income by any method that clearly reflects income. See § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); Treas. Reg. § 1.446-1(b)(1). The Commissioner’s reconstruction of income “need only be reasonable in lig

§ 1.6001-1(a). The taxpayer must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been paid or incurred. See § 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); He

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

do not constitute evidence.”); see also Ashkouri v.

Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). But when (as here) the Commissioner raises a new issue or an increase in the deficiency (including a proportionate increase in the penalty), he bears the burden of proof as to the new issue or

§ 1.6001-1(a). In certain circumstances the burden of proof shifts to the Commissioner if the taxpayers introduce credible evidence with respect to any factual issues relevant to ascertaining the taxpayers’ tax liability. See § 7491(a)(1). Because petitioners have not alleged or shown that section 7491(a) applies, the burden of

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Roberts v. Commissioner, 62 T.C. 834, 836 (1974). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). Section 162 permits taxpayers to deduct all ordinary and necessary business expenses paid or incurred during the taxable year. An ordinary expense is one that commonly or frequently occurs in the taxpayer’s business, Deputy v. du Pont, 308 U.

§ 6001; Treas. Reg. § 1.6001-1(a); see also Treas. Reg. § 1.6001- 1(e) (“The books or records . . . shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.”). Adequate substantiation must establish the nature, amount, and purpose of a claimed deduction. See, e.g., Higbee v. 4 W

§ 6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Section 162(a) allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Whether an expense is ordinary and necessary is a question of fact. Commissioner v. Heininger, 320 U.S. 467, 475 (1943). An expense i

§§ 6001, 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); Treas. Reg. § 1.6001-1(a). We have long accepted the bank deposits 3 The bank deposits method is one of the indirect methods of income determination the Commissioner relies upon if a taxpayer fails to keep books and records or a taxpayer’s records do not clearly reflect the taxpayer

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. On his delinquent and amended returns for 2008–2013 petitioner claimed in connection with his Schedule C business $355,000 of de

lowable pursuant to some statutory provision and to substantiate the expenses giving rise to the deductions claimed by maintaining and producing adequate records that enable the Commissioner to determine 11 [*11] the taxpayer’s correct liability.5 § 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). II. Schedule C Issues A. Expenses Section 162 allows a taxpayer to

§ 6001; Higbee, 116 T.C. at 440. Under the Cohan rule, the Court may estimate the amount of the expense if the taxpayer is able to demonstrate that he has paid or incurred a deductible expense but cannot substantiate the precise amount, as long as he produces credible evidence providing a basis for the Court to do so. Cohan v. Commissioner, 39 F.2d

§ 6001; Treas. Reg. § 1.6001-1(a). The burden of showing entitlement to a claimed deduction (from gross income) or reduction (from gross receipts) is on the taxpayer. See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The Villas do not contend, and the evidence does not establish, that the burden of proof shifts to the C

st substantiate the amount and the purpose of the expense underlying the deduction. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). A taxpayer must also maintain adequate records to demonstrate the propriety of any deduction claimed. Id.; see also § 6001. Certain expenses otherwise deductible under section 162(a) are subject to heightened substantiation requirements under section 274(d); these include expenses for traveling and expenses with respect to any listed property under section 280F(d)

Under section 7491(a), the burden of proof may shift to the Commissioner if a taxpayer produces credible evidence with respect to any relevant factual issue and meets other requirements. Petitioner has neither argued that section 7491(a) applies nor established that its requirements have been met. The burden of proof remains with pet

§ 1.6001-1(a), (e). If taxpayers establish that an expense is deductible but are unable to substantiate the precise amount, the Court may estimate the allowable amount (Cohan rule). See Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930). In estimating, we bear heavily against taxpayers “whose inexactitude is of [their] ow

When a taxpayer does not keep accurate books and records, the Commissioner may reconstruct his in- come “under such method as, in the opinion of the Secretary, does clearly reflect income.” § 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 10 [*10] (1989). Such reconstruction “need only be reasonable in light of all surrounding fact

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer’s correct tax liability. § 6001; Hradesky, 65 T.C. at 89–90. Under section 162(a), a deduction is

Alimony Deductions Section 215(a) generally allows a deduction for the payment of alimony as defined in section 71(b),4 which provides: (1) In general.—The term “alimony or separate maintenance payment” means any payment in cash if— 3 Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances.

When a taxpayer does not keep accurate books and records, the Commissioner may reconstruct his in- come “under such method as, in the opinion of the Secretary, does clearly reflect income.” § 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Such reconstruction “need only be reasonable in light of all sur- rounding facts and ci

§§ 6001, 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); Treas. Reg. § 1.6001-1(a). We have long accepted the bank deposits method for this purpose. DiLeo v. Commissioner, 96 T.C. 858, 881 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992); Clark v. Commissioner, T.C. Memo. 2021-114, at *34. The bank deposits method assumes that all money deposite

§ 6001; Treas. Reg. § 1.6001-1(a). If they fail to do so, the Commissioner may reconstruct income through any reasonable method that clearly reflects income. I.R.C. § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). We have long accepted the bank deposits method for this purpose. Clayton v. Commissioner, 102 T.C. 632, 645–46 (1994)

Commissioner, 62 T.C. 834, 836 (1974). Claiming a deduction on an income tax return is not sufficient to substantiate the underlying expense. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979). Rather, an income tax return “is merely a statement of the [taxpayer’s] claim . . . ; it is not presumed to be correct.” Roberts, 62 T.C.

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer’s correct tax liability. I.R.C. § 6001; Hradesky, 65 T.C. at 89–90. Under section 162(a),

Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). 6 [*6] Section 163(a) allows a deduction for all interest paid or accrued within the taxable year on indebtedness. Section 163(h)(1), however, provides that in the case of a taxpayer other th

§ 1.6001-1(a). In certain circumstances the burden of proof shifts to the Commissioner if the taxpayers introduce credible evidence with respect to any factual issues relevant to ascertaining the taxpayers’ tax liability. See § 7491(a)(1). Because petitioners have not alleged or shown that section 7491(a) applies, the burden of

§ 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Treas. Reg. § 1.6001-1(a). In the case of an individual, section 469 generally disallows any current deduction for a passive activity loss. I.R.C. § 469(a)(1), (b). The effect of the passive activity loss disallowance rule is that deductions related to passive activities are allowed a

Commissioner, 65 T.C. 87 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). The taxpayer must substantiate the amount and the purpose of the expense underlying the deduction. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). A taxpayer must also maintain adequate records to demonstrate the propriety of any deduction claimed

The taxpayer’s record-keeping requirements for the income tax are set forth in section 6001, which requires that— Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a tax- payer’s attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. Section 274(d)(4) sets forth heightened substantiation require- ments with respect to “listed property.” As in effect during 2

Commissioner, 65 T.C. 87 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). “A taxpayer’s self-serving declaration is generally not a sufficient substitute for records.” Fine v. Commissioner, T.C. Memo. 2013-248, at *4 (citing Weiss v. Commissioner, T.C. Memo. 1999-17). Taxpayers bear the burden of proof on new issues raise

Substantiation The taxpayer bears the burden of establishing his entitlement to deductions allowed by the Code and substantiating the amounts of his 8 [*8] claimed deductions.7 See § 6001; INDOPCO, Inc.

§ 1.6001-1(a); see also Treas. Reg. § 1.6001-1(e) (“The books or records . . . shall be retained so long as the contents thereof may become material in the administration of any internal revenue law”). The failure to keep and present accurate records counts heavily against a taxpayer’s attempted proof. Rogers v. Commissioner, T.

“In addition, the taxpayer bears the burden of substantiating the amount and purpose of the claimed deduction.” Higbee v. Commissioner, 116 T.C. 438, 440 (2001). In this case Mr. Schieder offered no evidence at trial to substantiate the itemized deductions claimed on his return. The record before us establishes, and the Commissioner concede

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). 4 [*4] I. Depreciation Deductions For property used in a trade or business or held for the production of income, a depreciation deduction is allowed for reasonable exhaustion or wear and tear. § 167(a). Magnet claimed depreciation deductions

If a 7 [*7] taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer’s income by any method that clearly reflects income. See I.R.C. § 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); Treas. Reg. § 1.446-1(b)(1). The Commissioner’s reconstruction of income “need onl

Commissioner, 62 T.C. 834, 836 (1974). Taxpayers are entitled to deduct losses sustained during the taxable year that were not compensated for by insurance or otherwise. § 165(a). Regulations under section 165 provide that a loss is treated as sustained during the taxable year in which the loss occurs as evidenced by a closed and

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

However, section 163(h)(1) provides that in the case of a taxpayer other than a corporation, no deduction shall be allowed for “personal interest.” “Personal interest” does not include qualified interest paid on acquisition indebtedness or home equity indebtedness with respect to a qualified residence.

ecause Mr. Clemons lacked records substantiating his income, the Commissioner reasonably reconstructed unreported income using a bank deposits analysis. See DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992); see also I.R.C. § 6001; Treas. Reg. § 1.6001-1(a). After showing that Mr. Clemons received bank deposits, the Commissioner needed only to produce evidence linking him to an income-producing activity to shift the burden. To that end, the record is replete with

§ 1.6001-1(a), (e). If the taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount, we may estimate the allowable amount (Cohan rule). See Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930). In estimating, we bear heavily against the taxpayer “whose inexactitude is of his own ma

to the business purpose of the Verizon expenses does not shift to respondent under section 7491(a), see supra Part I, because petitioner failed to maintain documentation that differentiates his personal and business use of the Verizon services, see § 6001; Treas. Reg. § 1.6001-1(a), (e). In certain circumstances, however, the Court may approximate a business expense if the taxpayer cannot substantiate its exact amount. Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930).10 The Court must

Commissioner, 65 T.C. 87 (1975), aff’d, 540 F.2d 821 (5th Cir. 1976). “A taxpayer’s self- serving declaration is generally not a sufficient substitute for records.” Fine v. Commissioner, T.C. Memo. 2013-248, at *4 (citing Weiss v. Commissioner, T.C. Memo. 1999-17). 16 [*16] Mr. Larson failed to present any credible evidence sho

When a taxpayer does not keep accurate books of account, the IRS may determine his income “under such method as, in the opinion of the Secretary, does clearly reflect income.” § 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). And where the tax- payer has unexplained bank deposits, the IRS may employ the bank de- posits method

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s at- tempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. Under Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930), if a taxpayer claims a deduction but cannot fully substantiat

Should a taxpayer fail to cooperate in the audit of his tax returns, wide latitude is afforded the Commissioner with respect to the method he may use to reconstruct that taxpayer’s income. Giddio v. Commissioner, 54 T.C. 1530 (1970). The Commissioner may use any reasonable method which reflects the taxpayer’s income, including the ba

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965); Treas. Reg. § 1.6001-1(a). A taxpayer must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer’s correc

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965); Treas. Reg. § 1.6001-1(a). A taxpayer is required to maintain records sufficient to enable the Commissioner to determine the correct tax liability. See § 6001; Treas. Reg. § 1.6001-1(a).

Certain expenses otherwise deductible under section 162(a) are subject to heightened substantiation requirements under section 274(d); these include expenses for traveling and expenses with respect to any listed property under section 280F(d)(4). See § 274(d)(1), (4). No deduction is permitted for personal, living, or family expenses unless

Commissioner, 116 T.C. 438, 440 (2001). For tax years 2013 and 2014, the Sezonovs claimed deductions on their Schedules E for losses connected with the Florida rental properties. Respondent disallowed the claimed loss deductions. Section 162 generally allows a taxpayer to deduct ordinary and necessary expenses paid or incurred in

In addition, “the taxpayer bears the burden of substantiating the amount and purpose of the claimed deduction.” Higbee v. Commissioner, 116 T.C. 438, 440 (2001). 9 [*9] When a taxpayer establishes that he or she paid or incurred a deductible expense but fails to establish the amount of the deduction, the Court may sometimes estimate

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). When a taxpayer establishes that he or she paid or incurred a deductible expense but fails to establish the amount of the deduction, the Court may sometimes estimate the amount allowable as a deduction. Cohan v. Commissioner, 39 F.2d 540, 543

The IRS is authorized to examine those returns, § 7602, and to determine that additional tax may be owed, § 6212. Any additional tax determined to be owed that is greater than the amount shown by the taxpayer on his return is referred to as the “deficiency”. § 6211. Before the IRS may forcibly collect the deficiency, it must first “as

Certain expenses otherwise deductible under section 162(a) are subject to heightened substantiation requirements under section 274(d); these include expenses for traveling and expenses with respect to any listed property under section 280F(d)(4). See § 274(d)(1), (4). No deduction is permitted for personal, living, or family expenses unless

1.6001-1(a), Income Tax Regs. This includes showing both the amount and the purpose of a claimed deduction. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Petitioner therefore bears the burden of proving both the amounts and the purposes of his Schedule C deductions. See id. I. Filing Status On the other hand, if the Commissioner

Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s at- tempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. Section 162(a) allows a deduction for “ordinary and necessary ex- penses paid or incurred . . . in carrying on any trade or bu

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

Certain expenses otherwise deductible under section 162(a) are subject to heightened substantiation requirements under section 274(d); these include expenses for travel (including meals and lodging) and expenses with respect to any listed property under section 280F(d)(4). See § 274(d)(1), (4). No deduction is permitted for personal, living

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). If a taxpayer establishes that he or she has incurred a trade or business expense contemplated by section 162(a) but is unable to substantiate the precise amount of the expense, the Court generally may estimate the amount of the expense and a

§ 1.6001-1(a). Bank deposits are prima facie evidence of income. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Bolles v. Commissioner, T.C. Memo. 2019-42, at *14. The bank deposits method of proof presumes that all deposits into a taxpayer’s bank account during a given period constitute taxable income unless the taxpayer can

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Treas. Reg. § 1.6001-1(a). II. Charitable Contributions A taxpayer may deduct charitable contributions made during the taxable year. § 170(a)(1). Such deductions are allowable only if the taxpayer satisfies specific statutory and regulatory s

§ 6001; Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer’s correct tax liability. I.R.C. § 6001; Hradesky, 65 T.C. at 89–90. When a taxpayer establ

A taxpayer is not entitled to deduct personal, living, or family expenses. § 262. Respondent disallowed business expense deductions for Sherwin of $26,500. After concessions, respondent challenges $5,888.80 of the disallowed business expenses (excluding the tuition discussed below); on brief, Sherwin conceded $2,056.54 of the disputed $5,88

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer is required to maintain and produce records sufficient to enable the Commissioner to determine the taxpayer’s correct tax liability. Sec.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. At a minimum petitioners must produce business records or other evidence substantiating the amounts and the purpose of the deductions that they assert respondent improperly disallowed. See Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Pursuant t

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances. Taxpayers must produce credible evidence with respect to any relevant factual issue in determining tax liability for the burden of proof as to that issue to shift to respondent.

1.6001-1(a), Income Tax Regs. The taxpayer must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been 5 Sec. 7491(a) provides that if, in any court proceeding, a taxpayer introduces credible evidence with respect to any fac

1.6001-1(a), Income Tax Regs. Settlement proceeds paid to a taxpayer constitute gross income unless the taxpayer proves they fall within a specific statutory exception. See Commissioner v. Schleier, 515 U.S. 323, 328-337 (1995). Section 104(a)(2) supplies one such exception, excluding from gross income “any damages (other than punit

See also Commissioner v.

6001; Newman v. Commissioner, T.C. Memo. 2000-345, 2000 WL 1675519, at *2; sec. 1.6001-1(a), Income Tax Regs.; see also King v. Commissioner, T.C. Memo. 1994-318, 1994 WL 330613, at *2 (“[A]ny amount allowed as cost of goods sold must be substantiated.”), aff’d without published opinion, 69 F.3d 544 (9th Cir. 1995). We have disallowed all or p

6001; 3Respondent conceded the following amounts: $2,000 for “MN Office Rent,” $460 for “Paper Stationary [sic] Ink,” $500 for “Flights,” and $1,380 for “Car and Truck” expenses. Respondent also conceded the sec. 6662(a) accuracy- related penalty in full. - 6 - INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Inco

Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). If the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining his or her liability and satisfies other conditions, then the burden of proof shifts

amount reported as COGS must be substantiated. King v. Commissioner, T.C. Memo. 1994-318, 1994 WL 330613, at *2 (“[A]ny amount allowed as cost of goods sold must be substantiated.”), aff’d without published opinion, 69 F.3d 544 (9th Cir. 1995); see sec. 6001; Newman v. Commissioner, T.C. Memo. 2000-345, 2000 WL 1675519, at *2; sec. 1.6001-1(a), Income Tax Regs. We have disallowed all or part of COGS claimed for a tax year when the taxpayer failed to maintain sufficient reliable records to susta

1.6001-1(a), Income Tax Regs. The Martins also have to prove that they actually paid those expenses. But they introduced no records about these legal expenses at all. This means we cannot figure out the amounts, the dates the Martins paid them, or whether the Martins paid them at all. We find these expenses nondeductible for failure

446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). 12Petzoldt v. Commissioner, 92 T.C. at 687. 13Clayton v. Commissioner, 102 T.C. 632, 645 (1994). 14Clayton v. Commissioner, 102 T.C. at 645. - 35 - [*35] income.15 We presume that the bank deposit analysis is correct, but the Commissioner “must take into account any nonta

Section 6001 and the regulations promulgated thereunder require taxpayers to maintain records sufficient to permit verification of income and expenses. See sec. 1.6001-1(a), (e), Income Tax Regs. Section 162(a) allows a taxpayer to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business. An ordinary expense is

When a taxpayer fails to keep records, the Commissioner has discretion to reconstruct the taxpayer’s income by any reasonable method that in the Commissioner’s opinion clearly reflects income. Sec. 446(b); Cole v. Commissioner, 637 F.3d 767, 774-775 (7th Cir. 2011), aff’g T.C. Memo. 2010-31; Webb v. Commissioner, 394 F.2d 366, 371-372 (5

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances. Petitioners did not allege or otherwise show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore, petitioners bear the burden of proof. See Rule 142(a). II.

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. The failure to keep and present accurate records counts heavily against the taxpayer’s attempted proof. See Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Unless specifically enumerated in the Code, deductions are not allowed for personal, liv

Commissioner, 96 T.C. 858, 867 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992). As stated above, the Commissioner must base his determination that the taxpayer received unreported income on “some substantive evidence” for the presumption of correctness to attach. Hardy v. Commissioner, 181 F.3d at 1004-1005. During the year in issue p

6001; Roberts v. Commissioner, 62 T.C. 834, 836 (1974). Failure to keep and present such records counts heavily against a taxpayer’s attempted proof. Rogers v. Commissioner, T.C. Memo. 2014- 141, 108 T.C.M. (CCH) 39, 43. Under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), if a taxpayer claims a deduction but cannot fully substant

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present accurate records “counts - 9 - heavily against a taxpayer’s attempted proof.” Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Moreover certain expenses, including those for travel and entertainment, carry a

6001; Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioners produced a spreadsheet, bank statements, and credit card statements to establish the deductibility of the expenses reported on the Schedule C. The spreadsheet includes an explanation for why certain expenses report

6001; Newman v. Commissioner, T.C. Memo. 2000-345. For instance, the Court has disallowed cost of goods sold when a taxpayer fails to present evidence of net sales, or beginning or ending inventory. See Petzoldt v. Commissioner, 92 T.C. 661, 698 (1989) (sustaining disallowance of cost of goods sold offset when 7 And under certain circumstances

Commissioner, 116 T.C. 438, 440 (2001). A. Car Racing Expenses Respondent disallowed claimed deductions of $121,903 for amounts paid to acquire the 68 Camaro and its parts. Petitioners present three alternative arguments: (1) the racing expenses are ordinary and necessary advertising expenses of Phoenix; (2) Phoenix purchased t

7491(a) provides that if, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtit.

212, and (2) the taxpayer can substantiate the reported expense as an ordinary and necessary business expense, see sec. 183; Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), aff’d without published opinion, 702 F.2d 1205 (D.C. Cir. 1983); see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Respondent has conceded - 8 - [*8] that petitioner actually paid the reported expenses. We therefore must determine only whether the expenses petitioner paid were ordinary and necessary expenses of a busi

Commissioner, 96 T.C. 858, 867 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992). For taxpayers who fail to keep adequate books and records, section 446(b) confers broad powers on the Secretary and his delegate, i.e., the Commissioner, to compute taxable income. Sec. 1.446-1(b)(1), Income Tax Regs.; see Webb v. Commissioner, 394 F.2d 36

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001- 1(a), Income Tax Regs. The burden of proof shifts to the Commissioner under certain circumstances to the extent that a taxpayer comes forth with credible evidence with re

Commissioner, 116 T.C. at 440; sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer’s attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. We address each type of deduction in issue in turn. A. Mortgage Interest Expenses Petitioners claimed both

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax Regs. In addition, the taxpayer bears the burden of substantiating the amount and purpose of the claimed deduction. Higbee v. Commissioner, 116 T.C. at 440; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). Oth

1.6001-1(a), (e), Income Tax Regs. In the event that a taxpayer establishes that a deductible expense has been paid but is unable to substantiate the precise amount, the Court generally may estimate the amount of the deductible expense, bearing heavily against the taxpayer whose inexactitude in substantiating the amount of the expen

Section 1366(a) provides that income, losses, deductions, and credits of an S corporation are passed through pro rata to its shareholders on their individual income tax returns.

1.6001-1(a), Income Tax Regs. Under certain circumstances the burden of proof on factual issues may shift to respondent. See sec. 7491(a). But petitioners introduced little (if any) “credible evidence,” and they did not “maintain[] all records required” by the Code. See sec. 7491(a)(1), (2)(B). They thus bear the burden of proof on

1.6001-1(a), Income Tax Regs. The burden of proof may shift from the taxpayer to the Commissioner in certain circumstances. Under section 7491(a)(1), “[i]f, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. - 14 - Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer is required to maintain and produce records sufficient to enable the Commissioner to determine the taxpayer’s correct tax liabili

6001; see Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Schedule C Deductions Section 162(a) allows a taxpayer to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business. Normally, the Court may estimate the amount of a deductible expense if a taxpayer establishes that an expense is deductible but is

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been paid o

1.6001-1(a), Income Tax Regs.; see also sec. 1.6001-1(e), Income Tax Regs. (“The books or records * * * shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.”). The failure to keep and present accurate records counts heavily against the taxpayer’s attempted proof. Se

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers are required to maintain records sufficient to enable the Commissioner to determine their correct tax liability. Sec. 6001; sec. 1.6001-1(

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. The failure to keep and present accurate records counts heavily against the taxpayer’s attempted proof. See Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Unless specifically enumerated in the Code, no deductions are allowed for personal, livi

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

Commissioner, 116 T.C. 438, 440 (2001). A. Car Racing Expenses Respondent disallowed claimed deductions of $121,903 for amounts paid to acquire the 68 Camaro and its parts. Petitioners present three alternative arguments: (1) the racing expenses are ordinary and necessary advertising expenses of Phoenix; (2) Phoenix purchased t

6001; Newman v. Commissioner, T.C. Memo. 2000-345. For instance, the Court has disallowed cost of goods sold when a taxpayer fails to present evidence of net sales, or beginning or ending inventory. See Petzoldt v. Commissioner, 92 T.C. 661, 698 (1989) (sustaining disallowance of cost of goods sold offset when 7 And under certain circumstances

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

6001; see also sec. 1.6001-1(a), Income Tax Regs. - 10 - A. 2014 Where a taxpayer fails to maintain adequate records, the Commissioner is authorized to compute the taxpayer’s income by any method which clearly reflects income, including the bank deposits method. See sec. 446(b); Nicholas v. Commissioner, 70 T.C. 1057, 1064 (1978). A bank depo

Commissioner, 96 T.C. 858, 867 (1991), M, 959 F.2d 16 (2d Cir. 1992). As stated above, the Commissioner must base his determination that the taxpayer received unreported income on "some substantive evidence" for the presumption ofcorrectness to attach. Hardy v. Commissioner, 181 F.3d at 1004-1005 (holding that third-party inform

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

Commissioner, 96 T.C. 858, 867 (1991), M, 959 F.2d 16 (2d Cir. 1992). As stated above, the Commissioner must base his determination that the taxpayer received unreported income on "some substantive evidence" for the presumption ofcorrectness to attach. Hardy v. Commissioner, 181 F.3d at 1004-1005 (holding that third-party inform

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.

at 180-181; see also Gonzales v.

Finally, a taxpayer has a responsibility under section 6001 to maintain adequate records.

Commissioner, 116 T.C. 438, 440 (2001). Ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining his Federal income tax liability and meets certain other requirements, the burden ofproofshifts from the taxpayerto the Commissioner as to that factual issue. Sec. 7491(a)(1) and (2). Petit

ackground and experience, we find this pattern particularly troubling and indicative offraudulent intent. 3. Failure To Maintain Adequate Records All taxpayers are required to maintain records sufficient to determine whether they are liable for tax, sec. 6001, and a failure to maintain adequate records can support a finding offraudulent intent, see Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), § T.C. Memo. 1984-601. - 50 - [*50] Both the Internal Revenue Code and the Californi

Commissioner, 116 T.C. 438, 440 (2001). Ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining his Federal income tax liability and meets certain other requirements, the burden ofproofshifts from the taxpayerto the Commissioner as to that factual issue. Sec. 7491(a)(1) and (2). Petit

mes,5 but these amendments have never suggested any 5See Pub. L. No. 99-514, secs. 142(d), 231(f), 301(b)(2), 1831, 100 Stat. at 2120, 2180, 2217, 2851 (1986); Pub. L. No. 100-203, sec. 10711(a)(1), 101 Stat. at 1330-464 (1987); Pub. L. No. 100-647, sec. 6001(a), 102 Stat. at 3683 (1988); Pub. L. No. 101-508, secs. 11801(a)(11), (c)(5), 11813(b)(10), 104 Stat. at 1388-520, 1388-523, 1388-554 (1990); Pub. L. No. 103-66, secs. 13172(a), 13222(b), 107 Stat. at 455, 479 (1993); Pub. L. No. 104-188,

6001; see also sec. 1.6001-1(a), Income Tax Regs. (providing records must be "sufficient to establish the amount ofgross income, deductions, credits, or other matters required to be shown by * * * [the taxpayer] in any return ofsuch tax or information"); see also Gianulis v. Commissioner, T.C. Memo. 2018-187, at *9-*11. The Goldbergs were - 1

1.6001-1(a), Income Tax Regs.; see also Higbee v. Commissioner, 116 T.C. at 440. Under the Cohan rule, the Court may estimate the amount ofan expense if the taxpayer is able to demonstrate that he has paid or incurred a deductible expense but cannot substantiate the precise amount, so long as he produces credible evidence that gives

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), affd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer is required to maintain records sufficient to enable the Commissioner to determine his correct tax liability. Sec. 6001; sec. 1.6001-1(a),

Commissioner, 116 T.C. 438, 440 (2001). Ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining his Federal income tax liability and meets certain other requirements, the burden ofproofshifts from the taxpayerto the Commissioner as to that factual issue. Sec. 7491(a)(1) and (2). Petit

6001; h - 12 - Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); sec. 1.6001-1(a), Income Tax Regs.; see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001). As a general rule, ifa taxpayerprovides sufficient evidence that the taxpayerhas paid or incurred an expense contemplated by section 162(a) but the taxpayer is unable to adequat

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 4Under sec. 7491(a)(1) the burden ofproofmay shift from the taxpayerto the Commissioner ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's liabil

6001; h - 12 - Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); sec. 1.6001-1(a), Income Tax Regs.; see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001). As a general rule, ifa taxpayerprovides sufficient evidence that the taxpayerhas paid or incurred an expense contemplated by section 162(a) but the taxpayer is unable to adequat

Acknowledging that petitioners had requested Appeals Office review, RA Ayadi provided a rebuttal to their protest and, citing the requirements ofsection 6001, noted that they had not provided any documents or records to substantiate the source ofthe funds that they purportedly contributed to K3 Ventures.

Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Such expenses must be directly connected with or pertain to the taxpayer's trade or business. Sec. 1.162-1(a), Income Tax Regs. Generally, no 7(...continued) the option generally has an

ons are allowable pursuant to some statutory provision and to substantiate the expenses giving rise to the claimed deductions by maintaining and producing adequate records that enable the Commissioner to determine the taxpayer's correct liability.¹² Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). ¹²Petitioners do not otherwise contend that the burden ofproofshould shift to respondent under sec. 7491(a) as to any relevant issue offact, nor have they established that they met the requ

1.6001-1(a), Income Tax Regs. Additionally, taxpayers bear the burden ofsubstantiating the amount and purpose ofeach item for which they claim a deduction. Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), © per curiam, 540 F.2d 821 (5th Cir. 1976). Section 162(a) allows a taxpayerto deduct all ordinary and necessary business expense

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. In practice, not all gamblers keep complete accounts oftheir gaming wins and losses. In some circumstances, when a taxpayer establishes that he paid or incurred a deductible expense but does not establish its precise amount, we may estimate the amoun

Commissioner, 96 T.C. 858, 867 (1991), M, 959 F.2d 16 (2d Cir. 1992). As petitioners could not identify the sources ofmost deposits shown on their bank statements, they failed to produce adequate records for respondent to calculate their taxable income flowing from JTI. Where a taxpayer fails to maintain or produce adequate book

1.6001-1(a), Income Tax Regs. -22- [*22] (b)(1), (2), and (3) imposes a penalty on "any portion ofan underpayment of tax required to be shown on a return" ifthe underpayment is due to, among other reasons, negligence, a substantial understatement ofincome tax, or a substantial valuation misstatement. An understatement ofincome tax

1.6001-1(a), Income Tax Regs. Petitioners have the burden to meet the requirements ofsection 162(a), as well as to substantiate any amounts reported as expenses. The criminal restitution amount did not include the disallowed unsubstantiated expenses. While petitioners have maintained that they are not liable for any deficiency in ex

1.6001-1, Income Tax Regs. It is well settled that ifthe taxpayer's books or records do not clearly reflect income, then the Commissioner is authorized "to reconstruct income in accordance with a method which clearly reflects the full amount ofincome received." Petzoldt v. Commissioner, 92 T.C. 661, 687 (1989) (and cases cited there

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

6001; Higbee v. Commissioner, 116 T.C. 438, - 10 - [*10] 440 (2001); Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioners have set forth no specific facts concerning, and they have provided no documentation to substantiate, their claimed Schedule E deductions. As to each ofthese items,

1.6001-1(a), Income Tax Regs. Petitioner contends that he is entitled to deduct $61,500 for payments to attorneys and an investigator in connection with the termination assessment litiga- tion during 2015-2016. Such expenses might be deductible as paid "in connection with the determination, collection, or refund ofany tax." Sec. 212

1.6001-1(a), Income Tax Regs.; see also id. sec. 1.6001-1(e) ("The books or records * * * shall be retained so long as the contents thereofmay become material in the administration ofany internal revenue law"). The failure to keep and present accurate records counts heavily against a taxpayer's attempted proof. Rogers v. Commissione

lso allowed "itemized" deductions for specified personal, family, or living expenses. When called upon by the Commissioner, however, a taxpayer must substantiate his expenses. See, e.g., Callender v. Commissioner, T.C. Memo. 2016-68, at *7; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. -34- [*34] Section 274(d) imposes heightened substantiation requirements for deductions or credits for traveling expenses, expenses for gifts, amounts with respect to "listed property", and items "with re

missioner, T.C. Memo. 2015-214, at *11. Taxpayers must also retain sufficient records to substantiate the amount ofreturns and allowances reported "so long as the contents thereofmay become material in the administration ofany internal revenue law." Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs. With a general three-year assessment period (six years in the - 6 - case ofa substantial omission ofincome) from the time a return is filed, a taxpayer has a duty to keep such records for no less tha

1.6001-1(a), Income Tax Regs.; see also Higbee v. Commissioner, 116 T.C. at 440. Under the Cohan rule, the Court may estimate the amount ofan expense if the taxpayer is able to demonstrate that he has paid or incurred a deductible expense but cannot substantiate the precise amount, as long as he produces credible evidence providing

Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Such expenses must be directly connected with or pertain to the taxpayer's trade or business. Sec. 1.162-1(a), Income Tax Regs. Generally, no 7(...continued) the option generally has an

claimed. Segel v. Commissioner, 89 T.C. 816, 842 (1987). This burden requires the taxpayerto demonstrate that the claimed deduction is allowable pursuant to some statutoryprovision and to substantiate the item giving rise to the claimed deduction.¹³ Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). II. Charitable Contributions A. Applicable Law A taxpayer is allowed as a deduction any c

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax Regs. In addition the taxpayerbears the burden ofsubstantiating the amount and purpose ofthe claimed deduction. Higbee v. Commissioner, 116 T.C. at 440; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), af[d, 540 F.2d 821 (5th Cir. 1976). The fact that a tax

orating the amount ofthe expense, the time and the place the expense was incurred, the business purpose ofthe expense, and the business relationship ofthe taxpayerto any others benefited by the expense.26 Adequate records require that the taxpayer 22Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs. 23Sanford v. Commissioner, 50 T.C. 823, 826-829 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T, Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). 24Sec. 274(d). 25S

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. Ifa taxpayer's records are lost or destroyed through circumstances beyond his or her control, the taxpayer may substantiate deductions through

6001; Higbee v. Commissioner, 116 T.C. 438, - 10 - [*10] 440 (2001); Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioners have set forth no specific facts concerning, and they have provided no documentation to substantiate, their claimed Schedule E deductions. As to each ofthese items,

6001; Higbee v. Commissioner, 116 T.C. at 440. Section 162(a) allows a taxpayerto deduct all ordinary and necessary expenses paid in carrying on a trade or business. An ordinary expense is one that commonly or frequently occurs in the taxpayer's business, Deputy v. du Pont, 308 U.S. 488, 495 (1940), and a necessary expense is one that is appro

Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Such expenses must be directly connected with or pertain to the taxpayer's trade or business. Sec. 1.162-1(a), Income Tax Regs. Generally, no 7(...continued) the option generally has an

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. Petitioners do not contend that they have satisfied the requirements ofsection 7491(a) for shifting the burden ofproof. See Rule 142(a)(2). The burden ofproofthus remains on them with respect to all factual issues. B. Analysis Section 469(a) ge

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aB, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. 4Petitioner does not claim and the record does not show that the provisions ofsec. 7491(a) are applicable, and we proceed as though they are not. - 5 - Mortgage Interest Section 163(a) provides: "There shall be allowe

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. II. Unreimbursed Employee Expenses A cash basis taxpayer may deduct ordinary and necessary expenses paid during the taxable year in carrying on a tr

When a taxpayer fails to keep records, the Commissioner has discretion to reconstruct the taxpayer's income by any reasonable means. Sec. 446(b); Webb v. Commissioner, 394 F.2d 366, 371-372 (5th Cir. 1968), afg T.C. Memo. 1966-81; Factor v. Commissioner, 281 F.2d 100, 117 (9th Cir. 1960), affg T.C. Memo. 1958-94. The IRS used the bank de

1.6001-1(a), Income Tax Regs.; see New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Ifthe taxpayer is able to establish that he or she paid or incurred a deductible expense but is unable to substantiate the precise amount, the Court generally may approximate the deductible amount, but only ifthe taxpayer presents suffici

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax Regs. Taxpayers must "keep such permanent books ofaccount or records * * * as are sufficient to establish the amount ofgross income, deductions, credits, or other matters required to be shown by such person in any return ofsuch tax or information." Sec. 1.6001

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayermay not deduct a personal, living, or family expense unless the Code expressly provides otherwise. Sec. 262(a). An ordinary expense is one that commonly or frequently occurs in the taxpayer's business, Deputy v. du Pont, 308 U.S.

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.

expenses paid or incurred during the taxable year in carrying on any trade or business". When called upon by the Commissioner, however, a taxpayer must substantiate his expenses. See, e.g., Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. To meet that burden, the taxpayer must substantiate both "the amount and purpose ofthe claimed deduction." Higbee v. Commissioner, 116 T.C. 438, 440 (2001). The documentation petitioners provided to subst

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax - 38 - [*38] Regs. In addition the taxpayerbears the burden ofsubstantiating the amount and purpose ofthe claimed deduction. Higbee v. Commissioner, 116 T.C. at 440; Hradesky v. Commissioner, 65 T.C. 87, 89-90, M, 540 F.2d 821 (5th Cir. 1976). The fact that a

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. At trial petitioner maintained his entitlement to the disputed deductions. According to respondent, petitioner is not entitled to any ofthem. For th

1.6001-1(a), Income Tax Regs. In the case ofan activity not engaged in for profit, section 183(a) allows no deduction other than as allowed in section 183(b). As applicable to the present case, section 183(b)(2) allows "a deduction equal to the amount ofthe deductions which would be allowable * * * ifsuch activity were engaged in fo

6001; INDOPCO v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014- 141, 108 T.C.M. (CCH) 39, 43. Section 274(d) imposes relatively strict substantiation requirements for de- duct

1.6001-1(a), Income Tax Regs.; see New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Ifthe taxpayer is able to establish that he paid or incurred a deductible expense but is unable to substantiate the precise amount, the Court generally may approximate the deductible amount, but only ifthe taxpayerpresents sufficient evid

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. II. Charitable Contributions A taxpayer may deduct charitable contributions made during the taxable year. Sec. 170(a)(1). A charitable contribution

When a taxpayer fails to keep records, the Commissioner has discretion to reconstruct the taxpayer's income by any reasonable means. Sec. 446(b); Webb v. Commissioner, 394 F.2d 366, 371-372 (5th Cir. 1968), afg T.C. Memo. 1966-81; Factor v. Commissioner, 281 F.2d 100, 117 (9th Cir. 1960), affg T.C. Memo. 1958-94. The IRS used the bank de

1.6001-1(a), Income Tax Regs. A taxpayer also bears the burden to substantiate the amount and purpose ofan expense underlying any claimed deduction. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). 5We do not address the issue ofsubstantiation. We further note that it was petitioner that allegedly paid the amounts that he deducted

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122

When a taxpayer fails to keep records, the IRS has discretion to reconstruct the taxpayer's income by any reasonable means. Sec. 446(b); Webb v. Commissioner, 394 F.2d 366, 371-372 (5th Cir. 1968), af[g T.C. Memo. 1966-81; Factor v. Commissioner, 281 F.2d 100, 117 (9th Cir. 1960), af[g T.C. Memo. 1958-94. In this case Mr. Hayes testified

6001; see Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), 7Petitioners provided only the French language documents, which are not admissible. See supra pp. 6-7. -12- aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. Petitioners deducted $500 for professional membership fees paid to the Institute ofElectric

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Section 162 allows a taxpayerto deduct all ordinary and necessary expenses paid or incurred by the taxpayer in carrying on a trade or business; but personal, living, or family expenses are not deductible. Secs. 162(a), 262(a). A trade or b

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T

6001; Higbee v. Commissioner, 116 T.C. at 438, 440 (2001). Generally, ifa taxpayer establishes that he or she paid or incurred a deductible expense but fails to establish the amount ofthe deduction, the Court may estimate the amount allowable as a deduction. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 8

1.6001-1(a), Income Tax Regs. 5Respondent concedes that one deposit, in the amount of$1,060, should have been excluded from Schedule C1 gross receipts for 2014. See supra note 2. - 15 - [*15] Certain expenses, including expenses for travel and "listed property," are subject to relatively strict substantiation rules. See secs. 274(d

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. At trial Mr. Benavides made a disorganized and confusing presentation that often left us struggling to identify the specific expenditure he intended to explain. He presented the general ledgers ofSunrise and depreciation schedules but did not offer

1.6001-1(a), Income Tax Regs. A taxpayerhas the burden ofsubstantiating both the amount paid and the purpose ofthe expense underlying the claimed deduction. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). 7Petitioners raise in their briefa number ofissues related to purported deductions that the parties settled before trial. These

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T

Commissioner, 96 T.C. 858, 867 (1991), aff'd, 959 F.2d 16 (2d Cir. 1992). With respect to unreported income, the Commissioner must base his determination ofa deficiency on "some substantive evidence" in order for the presumption of correctness to attach. Hardy v. Commissioner, 181 F.3d 1002, 1004-1005 (9th Cir. 1999) (holding th

1.6001-1(a), (e), Income Tax Regs.; see New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). If the taxpayer is able to establish that he paid or incurred a deductible expense but is unable to substantiate the precise amount, the Court generally may approximate the deductible amount, but only ifthe taxpayerpresents sufficien

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. At trial Mr. Benavides made a disorganized and confusing presentation that often left us struggling to identify the specific expenditure he intended to explain. He presented the general ledgers ofSunrise and depreciation schedules but did not offer

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 - 9 - (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissione

1.6001-1(a), Income Tax Regs. On his 2010 return, Mancini deducted a $603,000 loss. But the records in evidence don't show losses anywhere close to that amount. His Forms W-2G from 2010 show that he won $45,000, and the only other records ofhis gambling activity that we have are from the Venetian and Morongo casinos. No witness expl

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayermay not deduct a personal, living, or family expense unless the Code expressly provides otherwise. Sec. 262(a). An ordinary expense is one that commonly or frequently occurs in the taxpayer's business, Deputy v. du Pont, 308 U.S.

1.6001-1(a), Income Tax Regs. If they don't, we can estimate some expenses, but only ifthere's enough evidence to support an estimate. See Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985). There are no records in evidence that show Ms. McMillan actually incurred the costs

Commissioner, 112 T.C. 183, 186 (1999). Credit card and bank statements may be sufficient to show that an expense was paid, but usually aren't good enough without more to show that it was related to a trade or business 9 We won't discuss this issue beyond noting that the Bacas have preserved it. We have already held that the defa

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayermay not deduct a personal, living, or family expense unless the Code expressly provides otherwise. Sec. 262(a). An ordinary expense is one that commonly or frequently occurs in the taxpayer's business, Deputy v. du Pont, 308 U.S.

1.6001-1(a), Income Tax Regs. A taxpayerhas the burden ofsubstantiating both the amount paid and the purpose ofthe expense underlying the claimed deduction. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). 7Petitioners raise in their briefa number ofissues related to purported deductions that the parties settled before trial. These

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), © per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer is required to maintain records sufficient to enable the Commissioner to determine his correct 2Pursuant to sec. 7491(a), the burden ofproofa

Where the taxpayer failed to keep sufficient records under section 6001, the Commissioner may employ any reasonable method to reconstruct a taxpayer's income and thereby lay the requisite evidentiary foundation.

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a), the burden ofproofas to factual matters shifts to the Commissioner under certain circumstances. Petitioners did not allege or - 5 - otherwise show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore, petitioners bear the burden ofproof. See Rule 142(a).

1.6001-1(a), Income Tax Regs. A taxpayerhas the burden ofsubstantiating both the amount paid and the purpose ofthe expense underlying the claimed deduction. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). 7Petitioners raise in their briefa number ofissues related to purported deductions that the parties settled before trial. These

ofhis employment is deductible under * * * [the predecessor ofsection 162]."), affg T.C. Memo. 1958-60. When called upon by the Commissioner, a taxpayermust substantiate his expenses. M g, Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Moreover, some expenses, including those relating to travel, meals and entertainment, passenger automobiles, and computers, are subject to heightened substantiation requirements. M secs. 274(d), 280F(d)(4)

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), afÕl per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

1.6001-1(a), Income Tax Regs. Before considering the issues presented, we summarize our evaluation of the following witnesses who testified at the trial in this case: Mr. Presley, Ms. Presley, Mr. Johnson, Ms. Burch, and Mr. Dryer. We found the testimony ofMr. Presley to be inconsistent in certain material respects with certain test

Ifa taxpayer fails to do this, the Commissioner may reconstruct the taxpayer's income using any method that clearly reflects income. Sec. 446(b); see Holland v. United States, 348 U.S. 121 (1954); Giddio v. Commissioner, 54 T.C. 1530, 1532-1533 (1970). Respondent reconstructed petitioner's unreported gross income for 2008 and 2010 using

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Underthe Cohan rule, the Court may estimate the amount ofthe expense ifthe taxpayer is able to demonstrate that he has paid or incurred a deductible expense but cannot substantiate the precise amount, as long as he produces credible evidence providing a basis for the Court to do so. Cohan

6001; Roberts v. Commissioner, 62 T.C. 834, 835-837 (1974); Sparkman v. Commissioner, T.C. Memo. 2005-136, slip op. at 30-31, M, 509 F.3d 1149 (9th Cir. 2007); sec. 1.6001-1(a), Income Tax Regs. Section 162(a) allows a taxpayerto deduct "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade o

1.6001-1(a), Income Tax Regs. The failure to keep and present such records weighs heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. Ifa taxpayerwith inadequate business records proves that he paid certain expenses but cannot substantiate the exact amount, the Court ma

1.6001-1, Income Tax Regs. To the extent that petitioner substantially understated his income tax liabilities and disregarded applicable rules or regulations, respondent has satisfied the burden ofproduction by providing sufficient evidence to show that the penalties are appropriate. Petitioner has not established any reason why the

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. The failure to keep and present accurate records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. Section 274(d) imposes relatively strict substantiation requirements for de-

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. I. Burden ofProof Generally, the Commissioner's determination ofa deficiency is presumed correct, and the taxpayerbears the burden ofproving it inco

1.6001-1(a), Income Tax Regs. When he does not, we may estimate some expenses, but only if he provides at least some evidence to support an estimate and we are convinced he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985). Under section 274, certain - 35 -

Ifa taxpayer fails to maintain the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner's reconstruction ofincome "need only be reasonable in light ofall the surrounding facts and ci

Commissioner, 116 T.C. 438, 440 (2001); Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioner does not contend that the burden ofproofshould shift to respondent under section 7491(a), nor has he established that the requirements for shifting the burden ofproofhave been met

. 435, 440 (1934). The taxpayer claiming a deduction must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid or incurred.¹° See sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. I. Stipulations The stipulation process is considered "the bedrock ofTax Court practice" and acts "as an

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a), the burden ofproofas to factual matters shifts to the Commissioner under certain circumstances. Petitioners did not allege or otherwise show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore, petitioners bear the burden ofproof. See Rule 142(a). - 15 -

1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. In order to deduct business expenses under section 162, the taxpayermust carry on a trade or business. An activity is a trade or bu

The taxpayer bears the burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975). Petitioner - 6 - [*6] testified that he purposely chose not to keep any receipts or contemporaneous documents in 2013 or 2014. Despite being informed that he could reconstruct his records, he made no attempt to obtain a single record. Petit

Marlin did not keep all records required by section 6001 and negligently claimed abusive tax-shelter expenses.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), (e), Income Tax Regs. Ifa taxpayer establishes that a deductible expense has been paid or incurred but is unable to substantiate the precise amount, we generally may estimate the amount ofthe deductible expense, bearing h

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Section 162(a) allows the deduction of"all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." The term "trade or business" includes performing services as an employee. Primuth v. - 5

6001; Meneguzzo v. Commissioner, 5In Rogers v. Commissioner, T.C. Memo. 2018-53, Mr. Rogers disputed the taxability ofthese transfers to himselffor the year 2006. However, we found that $1,165,500 was taxable to him. Id. at *37. - 18 - [*18] 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. Claimed deductions in support ofd

Because the - 11 - IRS has conceded that she is entitled to a deduction of$21,194.01, she must prove entitlement to a deduction exceeding this amount.3 Section 6001 and the regulations promulgated thereunder require taxpayers to maintain records sufficient to permit verification ofincome and deductions.

These records should be - 5 - [*5] sufficient to establish the amount ofthe gross income or other items shown on the tax return. Sec. 1.6001-1(a), Income Tax Regs. Taxpayers shall retain these records as long as they may become material in the administration ofthe Code. Sec. 1.6001-1(e), Income Tax Regs. I. Moving Expenses Section 217(a

1.6001-1(a), Income Tax Regs. Additionally, taxpayers bear the burden ofsubstantiating the amount and purpose ofthe item claimed as a deduction. Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioners refused to introduce any evidence or testimony to substantiate their reported

When a taxpayer does not keep accurate books and records, the IRS may de- termine his or her income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). And where the taxpayer has unexplained bank deposits, the IRS may employ the bank depo

1.6001-1(a), Income Tax Regs. We begin by summarizing our evaluation ofthe evidence that we made part ofthe record at the trial in this case. With respect to the testimonial evidence, petitioner was the only witness at that trial. We found his testimonyto be for the most part irrelevant and unhelpful in resolving the issues presente

6001; Meneguzzo v. Commissioner, 5In Rogers v. Commissioner, T.C. Memo. 2018-53, Mr. Rogers disputed the taxability ofthese transfers to himselffor the year 2006. However, we found that $1,165,500 was taxable to him. Id. at *37. - 18 - [*18] 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. Claimed deductions in support ofd

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. Petitioner has not satisfied the conditions for shifting the burden ofproofunder section 7491(a) because he failed to maintain required records or to present credible evidence that he was entitled to these deductions. Respondent has the burden ofpro

467, 470 (1943); see also Kennelly v.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

6001; Meneguzzo v. Commissioner, 5In Rogers v. Commissioner, T.C. Memo. 2018-53, Mr. Rogers disputed the taxability ofthese transfers to himselffor the year 2006. However, we found that $1,165,500 was taxable to him. Id. at *37. - 18 - [*18] 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. Claimed deductions in support ofd

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). The failure to maintain and produce such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. - 8 - [*8] Memo. 2014-141, at *17. Petitioner does not co

Where a taxpayer fails to do so, or ifhis records do not clearly reflect income, then the Commissioner is authorized to reconstruct income in accordance with a method clearly reflecting the full amount ofincome received. The reconstruction need only be reasonable in the light ofall surrounding facts and circumstances. Petzoldt v. Commiss

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. The failure to keep and present accurate records counts heavily against a taxpay- er's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. Section 274(d) imposes relatively strict substantiation requirements for de

1.6001-1(a), Income Tax Regs. Section 162(a) generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In addition, for certain kinds ofexpenses that are otherwise deductible - 27 - [*27] under section 162(a), such as those for "listed property",

Section 162(a) generally permits a taxpayerto deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 261, however, provides that "[i]n computing taxable income, no deduction shall in any case be allowed in respect ofthe items specified in this part." "[T]his part" inc

Section 162(a) generally permits a taxpayerto deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 261, however, provides that "[i]n computing taxable income, no deduction shall in any case be allowed in respect ofthe items specified in this part." "[T]his part" inc

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. Petitioner has not satisfied the conditions for shifting the burden ofproofunder section 7491(a) because he failed to maintain required records or to present credible evidence that he was entitled to these deductions. Respondent has the burden ofpro

1.6001-1(a), Income Tax Regs. The burden of proofmay shift to Commissioner as to factual issues where the taxpayercomplies with certain substantiation and recordkeeping requirements, which have not been met in this case. See sec. 7491(a). Taxpayers are entitled to deduct losses resulting from theft. Sec. 165(a), (c), (e). The taxpay

6001; Meneguzzo v. Commissioner, 5In Rogers v. Commissioner, T.C. Memo. 2018-53, Mr. Rogers disputed the taxability ofthese transfers to himselffor the year 2006. However, we found that $1,165,500 was taxable to him. Id. at *37. - 18 - [*18] 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. Claimed deductions in support ofd

Section 162(a) generally permits a taxpayerto deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 261, however, provides that "[i]n computing taxable income, no deduction shall in any case be allowed in respect ofthe items specified in this part." "[T]his part" inc

7491(a) provides that if, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability ofthe taxpayer for any tax imposed by subtit.

When a taxpayer does not keep accurate books and records, the IRS may de- termine his or her income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). And where the taxpayer has unexplained bank deposits, the IRS may employ the bank depo

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. The taxpayerhas the burden ofproving entitlement to his or her deductions claimed. See Næ Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), af[g T.C. Memo. 1972-133. This includes t

6001; Higbee v. Commissioner, 116 T.C. at 440. - 10 - [*10] Normally, the Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), 6Petitioners do not contend, and the record does not suggest, that the burden ofproofshould shift to respondent pursuant to sec. 7491(a). -7- aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Fed

1.6001-1(a), Income Tax Regs. When he does not, we may estimate some expenses, but only if he provides at least some evidence to support an estimate and we are convinced he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985). Under section 274, certain - 35 -

Section 162(a) generally permits a taxpayerto deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 261, however, provides that "[i]n computing taxable income, no deduction shall in any case be allowed in respect ofthe items specified in this part." "[T]his part" inc

1.6001-1(a), Income Tax Regs. Section 162(a) generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In addition, for certain kinds ofexpenses that are otherwise deductible - 27 - [*27] under section 162(a), such as those for "listed property",

Further, section 6001 and the regulations promulgated thereunder require taxpayers to maintain records sufficient to permit verification ofincome and expenses.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), M, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C. 305, 313 (2004). Generally, the performance ofservices as an employ

Commissioner, 96 T.C. 858, 867 (1991), af[d, 959 F.2d 16 (2d Cir. 1992). As petitioner failed to produce a general ledger or his business invoices, he did not produce adequate records for respondent to calculate his gross income. Where a taxpayer fails to maintain or produce adequate books and records, the Commissioner is author

6001; see also Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), M, 540 F.2d 821 (5th Cir. 1976). Self-serving declarations generally are not a sufficient substitute for records. Weiss v. Commissioner, T.C. Memo. 1999-17, 1999 WL 34813, at *9. B. Deductibility ofBusiness Expenses Taxpayers may deduct "all the ordinary and necessary expenses

6001; Petzoldt v. Commissioner, 92 T.C. 661, 686 (1989); sec. 1.446-1(a)(4), Income Tax Regs. When a taxpayer fails to keep adequate books and records, the Commissioner is authorized to determine the existence and amount ofthe taxpayer's income by any method that clearly reflects income. Sec. 446(b); Petzoldt v. Commissioner, 92 T.C. at 693. T

1.6001-1(a), Income Tax Regs. We begin by summarizing our evaluation ofthe evidence proffered at the trial in this case. We address first the testimony ofMr. Singh, the only witness at - 8 - [*8] that trial. We found his testimonyto be not credible, uncorroborated, self- serving, and/or conclusory in certain material respects. We a

1.6001-1(a), Income Tax Regs. If, however, a taxpayer is able to prove that he or she paid or incurred a deductible business expense but cannot prove the amount ofthe expense, we may estimate the amount allowable in some circumstances under the Cohan rule. See Cohan v. Commissioner, 39 F.2d 540, 542-544 (2d Cir. 1930). For certain k

1.6001-1(a), Income Tax Regs. We begin by summarizing our evaluation ofthe evidence proffered at the trial in this case. We address first the testimony ofMr. Amelsberg. We found his testimony to be not credible, uncorroborated, self-serving, and/or conclusory in certain material respects. We are unwilling to, and we shall not, rely

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). Taxpayers are allowed deductions for certain business and investment expenses under sections 162 and 212. Section 469(a)(1), however, generally disallows for the taxable year any deduc

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. II. Unreimbursed Employee Expenses Mr. Triggs deducted unreimbursed employee expenses of$35,746 on his 2013 tax return. A taxpayermay deduct ordinar

1.6001-1(a), Income Tax Regs. Generally, the Commissioner's determinations in a notice ofdeficiency are presumed correct, and the taxpayerhas the burden ofproving the determinations are in error. Welch v. Helvering, 290 U.S. 111, 115 (1933). I. $500,000 Long-Tenn Capital Loss Respondent's notice ofdeficiency disallowed a $500,000 lo

ed IRA distributions totaling $25,622 during 2014. - 8 - [*8] substantiate the expenses giving rise to the claimed deductions by maintaining and producing adequate records that enable the Commissioner to determine the taxpayer's correct liability.6 Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). 6We note, and as we observed supra p. 6, respondent determined that petitioners failed to

1.6001-1(a), (d), Income Tax Regs. However, the Court may estimate cost ofgoods sold under a variation ofthe Cohan rule even when cost ofgoods sold is not fully substantiated, provided that there is a reasonable basis for making such an estimate. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax Regs. Section 162 permits a taxpayerto deduct ordinary and necessary business expenses paid or incurred during the taxable year, including "a reasonable allowance for salaries or other compensation for personal services actually rendered". Sec. 162(a)(1). Only

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), (e), Income Tax Regs. We are not required to accept B. Sholes' testimony in the absence ofcorroborating evidence that should have been available. See Geiger v. Commissioner,

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Section 162 allows a taxpayerto deduct all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Sec. - 21 - [*21] 162(a); sec. 1.162-1(a), Income Tax Regs. An expense is "ordinary" ifit is "normal, usual, or customary" in the taxpay

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining his Federal income tax liability and meets certain other requirements, the burden ofproofshifts from the taxpayerto the Commissioner as to that factual issue. Sec. 7491(a)(1) and (2). Petit

6001; sec.l.6001-1(a), Income Tax Regs. - 6 - [*6] Under section 7491(a)(1), the burden ofproofmay shift from the taxpayer to the Commissioner ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's liability and satisfies certain other requirements. Higbee v. Commissioner, 116 T.C. 4

Commissioner, 116 T.C. 438, 440 (2001). Normally, the Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

axpayers, therefore, are required to substantiate expenses underlying each claimed deduction by maintaining records sufficient to establish the amount ofthe deduction and to enable the Commissioner to determine the correct tax liability. - 6 - [*6] Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Under the Cohan rule, the Court may estimate the amount ofthe expense ifthe taxpayer is able to demonstrate that he or she has paid or incurred a deductible expense but cannot substantiate t

1.6001-1(a), Income Tax Regs. In order to reflect economic reality, a taxpayer's gross income generally includes any income from the discharge ofindebtedness. Sec. 61(a)(12); United States v. Kirby Lumber Co., 284 U.S. 1 (1931). A taxpayer is required to recognize COD income for the year the cancellation occurs, Montgomery v. Commis

Section 162(a) generally permits a taxpayerto deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 261, however, provides that "[i]n computing taxable income, no deduction shall in any case be allowed in respect ofthe items specified in this part." "[T]his part" inc

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's reconstruction ofincome "need only be reaso

Section 162(a) generally permits a taxpayerto deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 261, however, provides that "[i]n computing taxable income, no deduction shall in any case be allowed in respect ofthe items specified in this part." "[T]his part" inc

1.6001-1(a), Income Tax Regs. When he does not, we may estimate some expenses, but only if he provides at least some evidence to support an estimate and we are convinced he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985). Under section 274, certain - 35 -

When a taxpayer does not keep accurate books and records, the IRS may de- termine his or her income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). And where the taxpayer has unexplained bank deposits, the IRS may employ the bank depo

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a), the burden ofproofas to factual matters shifts to the Commissioner under certain circumstances. Petitioner has not alleged or otherwise shown that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore, petitioner bears the burden ofproof. See Rule 142(a). - 8 -

In addition, for certain kinds ofexpenses that are otherwise deductible under section 162(a), such as those for "listed property", as defined in section 280F(d)(4), a taxpayer must satisfy certain additional substantiation requirements set forth in section 274(d) before such expenses will be allowed as deductions.

6001; see Keith v. Commissioner, 115 T.C. 605, 621 (2000); Scharringhausen v. Commissioner, T.C. Memo. 2012- 350, at *31-*32. In 2011 petitioners sustained an NOL which they carried forward to 2012. The parties previously settled petitioners' deficiency for tax year 2011 in the case at docket No. 23659-14. In that settlement the parties agreed

1.6001-1(a), Income Tax Regs. When he does not, we may estimate some expenses, but only if he provides at least some evidence to support an estimate and we are convinced he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985). Under section 274, certain - 35 -

Marlin did not keep all records required by section 6001 and negligently claimed abusive tax-shelter expenses.

1.6001-1(a), Income Tax Regs. Section 162(a) generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In addition, for certain kinds ofexpenses that are otherwise deductible - 27 - [*27] under section 162(a), such as those for "listed property",

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C.

1.6001-1(a), Income Tax Regs. We address first whether petitioners are entitled to deduct for their taxable year 2015 the $56,042 ofclaimed miscellaneous expenses." It appears to be peti- "Although not clear, it appears that petitioners may be claiming that they are entitled to deduct for the year at issue an amount ofmiscellaneous

6001; - 7 - [*7] Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Gross Receipts Petitioners contend that $60,000 ofPhoenix's gross receipts in 2011 were included mistakenly. They contend that cash deposits of$50,000 and $10,000, made on August 5 and December 19, 2011, respectively, were a loa

1.6001-1(a), Income Tax Regs. When he does not, we may estimate some expenses, but only if he provides at least some evidence to support an estimate and we are convinced he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985). Under section 274, certain - 35 -

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. The taxpayer has the burden ofproving entitlement to his or her deductions claimed. See New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), aß T.C. Memo. 1972-133. Certain expense

6001; Higbee v. Commissioner, 116 T.C. at 440. - 10 - [*10] Normally, the Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1

6001; - 7 - [*7] Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Gross Receipts Petitioners contend that $60,000 ofPhoenix's gross receipts in 2011 were included mistakenly. They contend that cash deposits of$50,000 and $10,000, made on August 5 and December 19, 2011, respectively, were a loa

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining his Federal income tax liability and meets certain other requirements, the burden ofproofshifts from the taxpayerto the Commissioner as to that factual issue. Sec. 7491(a)(1) and (2). Petit

6001; Meneguzzo v. Commissioner, 5In Rogers v. Commissioner, T.C. Memo. 2018-53, Mr. Rogers disputed the taxability ofthese transfers to himselffor the year 2006. However, we found that $1,165,500 was taxable to him. Id. at *37. - 18 - [*18] 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. Claimed deductions in support ofd

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). In the case ofan NOL deduction, this burden requires the taxpayerto substantiate the NOL deduction by establishing both the existence ofthe NOL and the amount that - 9 - [*9] may be carried over to the year or years in question.7 United States v. Olympic Radio & Television, Inc., 349 U.S

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a), the burden ofproofas to factual matters shifts to the Commissioner under certain circumstances. Petitioners did not allege or otherwise show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore, petitioners bear the burden ofproof. See Rule 142(a). - 6 -

claimed deduction, INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992), and this burden includes establishing the correct amount ofthe deduction, Clapp v. Commissioner, 321 F.2d 12, 14 (9th Cir. 1963), § 36 T.C. 905 (1961); see also - 14 - [*14] sec. 6001; sec. 1.6001-1(a), Income Tax Regs. To meet its burden ofproof for the deductions at issue petitioner must prove the representative market prices for its sales to members ofthe controlled group. Petitioner contends that we should adopt the w

1.6001-1(a), Income Tax Regs. Likewise, the taxpayer is obliged to demonstrate - 5 - entitlement to an advantageous filing status, such as head ofhousehold. See Smith v. Commissioner, T.C. Memo. 2008-229. II. Dependency Exemption Deductions Section 151 allows deductions for personal exemptions, including exemptions for dependents o

1.6001-1(a), Income Tax Regs. Petitioners do not contend, and the evidence does not establish, that the burden ofproofshifts to respondent under section 7491(a) as to any issue offact. The Commissioner bears the burden ofproduction with respect to any additions to tax under section 6651 and accuracy-relatedpenalties under section 66

1.6001-1(a), Income Tax Regs.; see Næ Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Section 162(a) generally allows deductions for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In general, no deduction is permitted for personal, living, or family expense

1.6001-1(a), Income Tax Regs. Personal, living, or family expenses, however, are generally nondeductible. Sec. 262(a). 1. Equipment Lease Payments for 2009 and 2010 The equipment lease payments were ordinary and necessary expenses of Sound Diagnostic. Despite Mr. Zia-Ahmadi's intention to operate the ultrasound business between two

6001; Hradesky v. - 25 - [*25] Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Section 162 allows a taxpayerto deduct all ordinary and necessary expenses paid or incurred by the taxpayer in carrying on a trade or business; but personal, living, or family expenses are not deductible. Secs. 162(a), 262(a)

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. The failure to keep and present accurate records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014- 141, 108 T.C.M. (CCH) 39, 43. - 5 - [*5] A. Contract Labor Petitioner at trial did not explain the nature

1.6001-1(a), Income Tax Regs.; see Næ Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Section 162(a) generally allows deductions for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In general, no deduction is permitted for personal, living, or family expense

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a), the burden ofproofas to factual matters shifts to the Commissioner under certain circumstances. Petitioner did not allege or otherwise show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore, petitioner bears the burden ofproof. See Rule 142(a). II. Educ

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutoryprovision and must further substantiate that the

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Commissioner, 292 U.S. 435, 440 (1935); sec. 1.6001-1(a), (e), Income Tax Regs. The Commissioner bears the burden ofproduction with respect to any accuracy-related penalties under section 6662. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001)

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); - 6 - [*6] Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioner does not contend that the burden ofproof should shift to respondent under section 7491(a), nor has she established that the requirements for shifting the burden ofproo

1.6001-1(a), Income Tax Regs. Personal, living, or family expenses, however, are generally nondeductible. Sec. 262(a). 1. Equipment Lease Payments for 2009 and 2010 The equipment lease payments were ordinary and necessary expenses of Sound Diagnostic. Despite Mr. Zia-Ahmadi's intention to operate the ultrasound business between two

1.6001-1(a), Income Tax Regs. We may estimate some types ofbusiness expenses, but only ifthe taxpayer provides at least some documentation to support an estimate and only ifwe are convinced from the record that he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Blythe v. Commissioner, T.C. Memo. 1999-11. Mr

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

1.6001-1(a), Income Tax Regs. If, however, a taxpayerwith inadequate or nonexistent business records is able to prove that he or she paid or incurred a deductible business expense but does not prove the amount ofthe expense, we may estimate the amount allowable in some circumstances (Cohan rule). See Cohan v. Commissioner, 39 F.2d 5

1.6001-1(a), Income Tax Regs. In this case, the evidence does not establish that the burden ofproofshifts to respondent under section 7491(a) as to any issue offact. The Commissioner bears the burden ofproduction with respect to any accuracy-related penalties under section 6662. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438

6001; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); sec. 1.6001-1(a), Income Tax Regs; see a_lso Higbee v. Commissioner, 116 T.C. at 440; Rodriguez v. Commissioner, T.C. Memo. 2009-22; Said v. Commissioner, T.C. Memo. 2003-148, aff'd, 112 Fed. Appx. 608 (9th Cir. 2004). Ifthe taxpayer can establish that she paid or incurred a de

elch v. Helvering, 290 U.S. at 113. The taxpayers also bear the burden ofsubstantiating the expenses underlying their claimed deductions by keeping and producing records sufficient to enable the Commissionerto determine the correct tax liability.23 Sec. 6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present accurate records counts heavily against the taxpayers' attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-1

Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). This is not the first time petitioner has appeared before this Court. In Jackson v. Commissioner, T.C. Summary Opinion 2016-33, petitioner argued that he was entitled to this same deduction

1.6001-1(a), Income Tax Regs. In certain circumstances the burden ofproofshifts to the Commissioner if the taxpayer introduces credible evidence with respect to a relevant factual issue. Sec. 7491(a). Because we decide the issues in this case on the preponderance of 6(...continued) to a former spouse other than Ms. Williams of$32,00

1.6001-1(a), Income Tax Regs. We may estimate some types ofbusiness expenses, but only ifthe taxpayer provides at least some documentation to support an estimate and only ifwe are convinced from the record that he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Blythe v. Commissioner, T.C. Memo. 1999-11. Mr

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014- 141, 108 T.C.M. (CCH) 39, 43. Section 274(d) imposes relatively strict substantiation requirements for de

6001; Hradesky v. 5Petitioner has not asserted that the burden ofproofas to any relevant factual issue should shift to respondent under sec. 7491(a), and there is no justification on this record for doing so. - 8 - Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 8

1.6001-1(a), (e), Income Tax Regs. Nonetheless, in certain cases, ifa taxpayer claims a deduction but cannot substantiate the underlying expense fully, the Court "should make as close an approximation as it can, bearing heavily ifit chooses upon the taxpayerwhose inexactitude is ofhis own making." Cohan v. Commissioner, 39 F.2d 540,

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), a_f[d per curiam, 540 F.2d 821 (5th Cir. 1976). Work-related travel expenses, such as expenses incurred for a taxpayer's daily meals and for commuting between the taxpayer

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), a_fÕl, 540 F.2d 821 (5th Cir. 1976); see also sec. 1.6001-1(a), (e), Income Tax Regs. A. Expenses Under Section 274 Taxpayers are required to substantiate expenses underlying a claimed deduction by maintaining records sufficient to establish the amounts ofthe expenses and to enable the C

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). But, when the Commissioner raises a new issue or an increase in the deficiency, he bears the burden ofproofas to the new issue or the increased deficiency. Rule 142(a)(1); Roberts v. Commis

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). - 11 - [*11] H alone was responsible for preparing the Forms 1040 that were the purportedjoint tax returns for himselfand W, and W had no information or evidence relating to deductions. H did not attend or testify at trial, and he present

1.6001-1(a), Income Tax Regs. Petitioners claim, and Mr. Kohn testified, that the $64,238 "AMERICAN BANK SETTLEMENT" was an ordinary and necessary business expense because the funds from the American Bank loan were used in part to start the Kohn Partnership and in part to reimburse Mr. Kohn's former clients who had been wrongfully c

6001; INDOPCO v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. In the event a taxpayer establishes that it has incurred a deductible expense but

7491(a) provides that if, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability ofthe taxpayer for any tax imposed by subtit.

1.6001-1(a), Income Tax Regs.; see also Olive v. Commissioner, 139 T.C 19, 32 (2012), aff'd, 792 F.3d 1146 (9th Cir. 2015). COGS is determined under section 471 and the accompanying regulations. S_e_e secs. 1.471-3(c), 1.471-11(c), Income Tax Regs. Petitioners contend we should allow the COGS in THC's income tax returns under the Co

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. A taxpayer may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122

1.6001-1(a), Income Tax Regs.; see Næ Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Ifthe taxpayer is able to establish that he paid or incurred a deductible expense but is unable to substantiate the precise amount, the Court generally may approximate the deductible amount, but only ifthe taxpayerpresents sufficient evide

1.6001-1(a), Income Tax Regs.; see Næ Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Ifthe taxpayer is able to establish that he paid or incurred a deductible expense but is unable to substantiate the precise amount, the Court generally may approximate the deductible amount, but only ifthe taxpayerpresents sufficient ¹²(..

¹6Whether the entry fees are treated as a direct cost ofthe wager, deductible only to the extent ofwagering gains, or a nonwagering business expense that is not a wagering loss makes no difference in this case as petitioners would be entitled to deduct them in full in either event. -18- 1.6001-1(a), Income Tax Regs. However, certai

6001; Rule 142(a); see Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Most ofMr. Lewis' claimed expenses include automobile and travel-related expenses which are subject to the strict substantiation requirements ofsection 274(d). To deduct such items, the taxpayer must substantiate through adeq

6001; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); sec. 1.6001-1(a), Income Tax Regs; see a_lso Higbee v. Commissioner, 116 T.C. at 440; Rodriguez v. Commissioner, T.C. Memo. 2009-22; Said v. Commissioner, T.C. Memo. 2003-148, aff'd, 112 Fed. Appx. 608 (9th Cir. 2004). Ifthe taxpayer can establish that she paid or incurred a de

Section 1366(a)(1) provides that shareholders ofan S corporation shall take into account their pro rata shares ofthe S corporation's income, loss, deductions, and credits for the S corporation's taxable year ending with or in the shareholders' taxable year.

Petitioners have not challenged the accuracy ofthe gross winnings amounts reflected on the Forms W-2G 4 Rather, petitioners argue that those amounts should be reduced by the amounts ofbets they placed to produce their winnings. Although petitioners introduced evidence oflosses at another casino (in addition to lottery tickets and sportin

- 10 - [*10] II. Petitioners' Proposed Findings ofFact Petitioners have asserted a number offacts in their brief. Petitioners' proposed findings offact explain the indemnity fund arrangementbetween Mr. Wages' bail bonding business and the surety for which it was acting as an agent. The proposed findings offact further allege that an ind

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. Furthermore, section 274(d) imposes more rigorous substantiation requirements for certain expenses, including those for meals and entertainment. I. Dental Practice Expense Deductions Petitioner husband testified that many ofthe dental practice

1.6001-1(a), (e), Income Tax Regs. The evidence does not establish that the burden ofproofshifts to respondent under section 7491(a) as to any issue offact. - 6 - [*6] The Commissionerbears the burden ofproduction with respect to a taxpayer's liability for additions to tax. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 44

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001- 1(a), Income Tax Regs. Personal, living, and family expenses are generally not deductible. Sec. 262(a). Taxpayers may, however, generally deduct ordinary and necessary expenses paid or incurred for (1) the production or collec

" means total sales, less the total cost ofgoods sold. - 9 - [*9] Taxpayers must show their entitlement to amounts claimed as business expenses or cost ofgoods sold, see Rule 142(a), and must keep sufficient records to substantiate such items, see sec. 6001; Newman v. Commissioner, T.C. Memo. 2000-345, 80 T.C.M. (CCH) 661, 663 (2000). Petitioners did not produce any business records or any other supporting documents to substantiate CKC's business expenses or costs ofgoods sold. 5 Under Cohan v.

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax Regs. The failure to keep and present such records weighs heavily against the taxpayer. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. In certain circumstances the burden ofproofshifts to the Commissioner ifthe taxpayer introduces credible evidence with

6001; INDOPCO v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. In the event a taxpayer establishes that it has incurred a deductible expense but

When a taxpayer does not keep accurate books and records, the IRS may deter- mine his or her income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). And where the taxpayer has unexplained bank deposits, the IRS may employ the bank depo

The records ofspecific payments that petitioners did provide were sparse, and petitioners testified that they created or altered many ofthese records in 2010 for the purpose ofan IRS examination. Respondent was therefore authorized to reconstruct petitioners' income by any method that "does clearly reflects income." Sec. 446(b); Petzoldt

1.6001-1(a), Income Tax Regs. We begin by summarizing our evaluation ofthe testimony ofMr. Justine, the only witness at the trial in this case. We found his testimonyto be uncorrobo- rated, self-serving, and/or conclusory in certain material respects. We are - 15 - [*15] unwilling to, and we shall not, rely on Mr. Justine's uncorro

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Ifa taxpayer establishes that an expense is deductible but is unable to - 8 - [*8] substantiate the precise amount, the Court may estimate the dedu

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. I. Real Estate Activity Taxpayers are generally allowed to deduct business and investment expenses under sections 162 and 212, but section 469 puts strict limits on current deductibility ifa taxpayer incurs those expenses in a "passive activity". Sec

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aß per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. -11- [*11] Section 162(a) allows a deduction for ordinary and necessary business expenses paid or incurred during the taxable year in carrying on

1.6001-1(a), (e), Income Tax Regs. The evidence does not establish that the burden ofproofshifts to respondent under section 7491(a) as to any issue offact. II. Section 469 Losses From Rental Real Estate Activities Taxpayers are allowed deductions for certain business and investment expenses under sections 162 and 212. Generally, an

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Taxpayers are allowed deductions for certain business and investment expenses under sections 162 and 212. Section 469, however, generally disallows any passive activity loss. Sec. 469(a). A passive activity loss is defined as the excess of

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. 2Petitioner concedes that he received and failed to report: (1) interest income of$50 from Metlife Home Loans for 2011 and (2) cancellation of indebted

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Section 274(d) imposes more rigorous substantiation requirements for expenses pertaining to travel, b

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. Furthermore, section 274(d) imposes more rigorous substantiation requirements for certain expenses, including those for meals and entertainment. I. Dental Practice Expense Deductions Petitioner husband testified that many ofthe dental practice

1.6001-1(a), Income Tax Regs.; see also Olive v. Commissioner, 139 T.C 19, 32 (2012), aff'd, 792 F.3d 1146 (9th Cir. 2015). COGS is determined under section 471 and the accompanying regulations. S_e_e secs. 1.471-3(c), 1.471-11(c), Income Tax Regs. Petitioners contend we should allow the COGS in THC's income tax returns under the Co

Commissioner, T.C. Memo. 2002-250, 84 T.C.M. (CCH) 403, 408; sec. 1.6001-1(a), Income Tax Regs. Ifa taxpayerwith inadequate business records proves that he incurred cer- tain expenses but cannot substantiate the exact amount, the Court in appropriate circumstances may estimate the amount allowable. Cohan, 39 F.2d at 542-544; Key

334 (1981); see also Console v.

35, 440 (1934). To that end a taxpayer is required to substantiate each claimed deduction by maintaining records sufficient to establish the amount ofthe deduction and to enable the Commissioner to determine the correct tax liability. - 51 - [*51] Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001- 1(a), Income Tax Regs. II. Related-Party Bad Debt Deductions Section 166(a) provides as a general rule that a deduction shall be allowed for "any debt which becomes worthless wit

When taxpayers fail that requirement, the Commissioner may reconstruct their income using any reasonable method. See Holland v. United States, 348 U.S. 121, 130-131 (1954); see also - 33 - [*33] DiLeo v. Commissioner, 96 T.C. 858, 867 (1991) ("The use ofthe bank deposits method for computing income has long been sanctioned by the courts

Commissioner, 116 T.C. 438, 440 (2001). Specifically, in this case, "[t]he burden ofproving the reality of* * * indebtedness -17- [*17] rests on the petitioner." P.M. Fin. Corp. v. Commissioner, 302 F.2d 786, 789 (3d Cir. 1962), § T.C. Memo. 1961-108. The Court need not accept a taxpayer's self-serving testimonywhen the taxpay

1.6001-1(a), (e), Income Tax Regs. Ifa taxpayer fails to keep adequate books and - 10 - [*10] records, the IRS may reconstruct the taxpayer's income by any method that is reasonable under the circumstances. Petzoldt v. Commissioner, 92 T.C. 661, 687 (1989). The reconstruction need not be exact, so long as it is reasonable and subst

6001; Hradesky v. Commissioner, 65 T.C. 87 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976). - 12 - [*12] Section 7491(a)(1) provides that ifa taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's liability, the Commissioner shall have the burden ofproofwith respect to that issue. M Higbee

35, 440 (1934). To that end a taxpayer is required to substantiate each claimed deduction by maintaining records sufficient to establish the amount ofthe deduction and to enable the Commissioner to determine the correct tax liability. - 51 - [*51] Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001- 1(a), Income Tax Regs. II. Related-Party Bad Debt Deductions Section 166(a) provides as a general rule that a deduction shall be allowed for "any debt which becomes worthless wit

Mindful as we are ofthe recordkeeping requirements ofsection 6001 and the regulations promulgated thereunder that require taxpayers to maintain records sufficient to permit verification ofincome, see sec.

6001; Edwards v. Commissioner, T.C. Memo. 2014-57, at *21; sec. 1.6001-1(a), Income Tax Regs. "Sanford v. Commissioner, 50 T.C. 823, 826-827 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). ¹²Sec. 274(d). ¹³Sec. 280F(d)(4). - 14 - have adequate record

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Section 162(a) generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or

Appeals Office to clarify the record * * *, the Appeals Office is not limited to what the Appeals Office considered during the first administrative hearing." (citing Hoyle v. Commissioner, 136 T.C. at 468)), supplementing 134 T.C. 1 (2010); see also sec. 6001; secs. 31.6011(a)-1(a)(1), 31.6011(a)-3, Employment Tax Regs. (requiring employers to file returns under FICA and FUTA). Petitioner therefore did not properly challenge the underlying liabilities during the section 6320/6330 hearing, and we

1.6001-1(a), Income Tax Regs. If, however, a taxpayerwith inadequate or nonexistent business records is able to prove that it paid or incurred a deductible business expense but does not prove the amount ofthe expense, the Court may estimate the amount allowable in some circumstances (Cohan rule). See Cohan v. Commissioner, 39 F.2d 5

Petitioners did not attempt to substantiate either their deductions claimed on Schedule E or their itemized deductions. Petitioners did not otherwise provide evidence disputing respondent's determinations for these deductions. Accordingly, the disallowed amounts for these deductions are deemed conceded by petitioners. See Rule 149(b). IV

1.6001-1(a), (e), Income Tax Regs. Absent any specific instructions, a taxpayer is not required to keep records in a particular manner so long as the records maintained substantiate his or her entitlement to the credit. Suder v. Commissioner, at *55. Under Cohan v. Commissioner, 39 F.2d at 543-544, ifa taxpayer claims a deduction or

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. Section 274(d) imposes more rigorous substantiation requirements for certain expenses, including those pertaining to travel and passenger automobiles. Expenses subject to section 274(d) must be substantiated; they cannot be estimated. See Sanfo

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present accurate records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. - 9 - [*9] In certain circumstances, the Court may approximate the amount ofan ex- pense

6001; Hradeskyv. Commissioner, 65 T.C. 87 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Generally, an NOL is the excess ofallowable deductions over gross income for a given tax year. Sec. 172(c). Only certain deductions are considered when calculating the amount ofan individual's NOL. Sec. 172(c) and (d). Unless an exception applies,

expenses paid or incurred during the taxable year in carrying on any trade or business". When called upon by the Commissioner, however, a taxpayer must substantiate her expenses. See, e.g., Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. 1. Expenses Subject to Section 274(d) Section 274(d) imposes heightened substantiation requirements for the deduction ofspecified expenses. Among the items to which section 274(d) applies are traveling ex

1.6001-1(a), Income Tax Regs. If, however, a taxpayerwith inadequate or nonexistent business records is able to prove that it paid or incurred a deductible business expense but does not prove the amount ofthe expense, the Court may estimate the amount allowable in some circumstances (Cohan rule). See Cohan v. Commissioner, 39 F.2d 5

ns and to establish his correct tax liability, and when the Commissioner requests such records, the - 11 - [*11] taxpayermust produce them. Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. A deduction is not allowed under section 162 to an employee to the extent he is entitled to reimbursement from his employer for expenses related to his position as an employee. Lucas v. Commissioner, 79 T.

1.6001-1(a), Income Tax Regs. If, however, a taxpayerwith inadequate or nonexistent business records is able to prove that it paid or incurred a deductible business expense but does not prove the amount ofthe expense, the Court may estimate the amount allowable in some circumstances (Cohan rule). See Cohan v. Commissioner, 39 F.2d 5

6001; INDOPCO v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. In the November 12, 2015, discovery requests, respondent requested that petitioner submit any documentation showing that he was entitled to additional deductions, exemptions, or credits. Petitioner has set forth no specific facts con- cerning, and he

Commissioner, 96 T.C. 858, 867 (1991), aKd, 959 F.2d 16 (2d Cir. 1992). When - 8 - [*8] a taxpayer fails to maintain sufficient records to allow the determination of his correct tax liability, the Commissioner may reconstruct the taxpayer's income using any method that clearly reflects the taxpayer's income. See sec. 446; Petzo

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that th

1.6001-1(a), (e), Income Tax Regs. Absent any specific instructions, a taxpayer is not required to keep records in a particular manner so long as the records maintained substantiate his or her entitlement to the credit. Suder v. Commissioner, at *55. Under Cohan v. Commissioner, 39 F.2d at 543-544, ifa taxpayer claims a deduction or

See also Commissioner v.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). Under certain circumstances, the burden ofproofwith respect to relevant factual issues may shift to the Commissioner under section 7491(a). Petitioner has neither alleged that section

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). Under certain circumstances, the burden ofproofwith respect to relevant factual issues may shift to the Commissioner under section 7491(a). Petitioner has neither alleged that section

6001; Hradesky v. Commissioner, 65 T.C. 87 (1975), affd, 540 F.2d 821 (5th Cir. 1976). In order to prove they were entitled to deduct the nursing home LLC losses disallowed by respondent, petitioners must establish with specificity Brenda Hargis' basis in Melbourne Properties and Clay County. S_e_e sec. 704(d); O'Neill v. Commissioner, 271 F.2

When a taxpayer does not keep accurate books ofaccount, the IRS may determine his income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). And where the taxpayerhas unexplained bank deposits, the IRS may em- ploy the bank deposits metho

1.6001-1(a), (e), Income Tax Regs. Under section 7491(a), the burden ofproofmay shift to the Commissioner if the taxpayerproduces credible evidence with respect to any relevant factual issue and meets other requirements. Petitioners did not argue for a burden shift under section 7491(a), and the record does not establish that the pr

Mindful as we are ofthe recordkeeping requirements ofsection 6001 and the regulations promulgated thereunderthat require taxpayers to maintain records sufficient to permit verification ofincome, see sec.

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. To establish entitlement to a deduction for gambling losses the taxpayer must prove the losses sustained during the taxable year. Mack v. Commissioner, 429 F.2d at 184; see also Mayer v. Commissioner, T.C. Memo. 2000-295. The Commissioner has suggest

6001; Higbee v. Commissioner, 116 T.C. at 440. When a taxpayer establishes that he or she paid or incurred a deductible expense but fails to establish the amount ofthe deduction, the Court normally may estimate the amount allowable as a deduction. - 8 - Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.

Commissioner, 96 T.C. 858, 867 (1991), aff'd, 959 F.2d 16 (2d Cir. 1992); sec. 1.6001-1(a), Income Tax Regs. 7Sec. 7491(a) may also shift the burden ofproofto the Secretary concerning any factual issue relevant to ascertaining the taxpayer's liability for income tax where the taxpayer introduces credible evidence and has satisfi

1.6001-1(a), Income Tax Regs. If, however, a taxpayerwith inadequate or nonexistent business records is able to prove that he or she paid or incurred a deductible business expense but does not prove the amount ofthe - 5 - expense, we may estimate the amount allowable in some circumstances (Cohan rule). See Cohan v. Commissioner, 39

6001; Higbee v. Commissioner, 116 T.C. at 440; sec. 1.6001-1(a), Income Tax Regs. Section 162 permits a taxpayerto deduct ordinary and necessary business expenses paid or incurred during the taxable year, including "a reasonable allowance for salaries or other compensation for personal services actually - 9 - [*9] rendered". Sec. 162(a)(1). P

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate 3Petitioners do not claim and the record does not show that the provisions of sec. 7491(a) are applicab

1.6001-1(a), (e), In- come Tax Regs. In certain circumstances, the Court may approximate the amount ofan expense ifthe taxpayerproves it was incurred but cannot substantiate the ex- act amount. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). But the taxpayer must provide some basis for such an estimate. Vanicek v. Commis

When a taxpayer does not keep accurate books and records, the IRS may deter- mine his or her income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). And where the taxpayerhas unexplained bank deposits, the IRS may employ the bank depos

1.6001-1(a), Income Tax Regs. If, however, a taxpayerwith inadequate or nonexistent business records is able to prove that it paid or incurred a deductible business expense but does not prove the amount ofthe expense, the Court may estimate the amount allowable in some circumstances (Cohan rule). See Cohan v. Commissioner, 39 F.2d 5

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Under section 7491(a), in certain circumstances, the burden ofproofmay shift from the taxpayerto the Commissioner. Petitioners have not claimed or shown that they meet the - 7 - requirements ofsection 7491(a) to shift the burden ofproofto responden

6001; Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioner admitted at trial that she lacked substantiation for certain ofher reported expenses. She claimed a deduction of $480 for "supplies," but her business records show that amount, accrued at a flat rate of$40 per month, a

1.6001-1(a), Income Tax Regs. Pursuant to section 7491(a)(1), the burden of proofwith respect to relevant factual issues may shift to the Commissioner. Specifically, section 7491(a)(1) provides: "If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liabil

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutoryprovision and must further substantiate that

6001; INDOPCO v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), In- come Tax Regs. The failure to keep and present such records counts heavily - 12 - [*12] against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Petitioner has set forth no specific facts concerning, and he has provided no docum

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. 3Petitioner does not claim and the record does not demonstrate that the provisions ofsec. 7491(a) are applicable, and we proceed as though they are not

1.6001-1(a), Income Tax Regs. It is petitioner's position that she is entitled to a deduction under section 170(a) with respect to certain claimed noncash charitable contributions. In support ofher position, petitioner relies on her testimony and certain documents, including four Forms 8283 that she included with the 2010 return, se

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's reconstruction ofincome "need only be reaso

1.6001-1(a), (e), Income Tax Regs. Under section 7491, the burden ofproofshifts from the taxpayerto the Commissioner only ifthe taxpayerproduces credible evidence with respect to any - 13 - [*13] factual issue relevant to ascertaining the taxpayer's tax liability. Sec. 7491(a)(1); Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001

1.6001-1(a), (e), Income Tax Regs. Absent any specific instructions, a taxpayer is not required to keep records in a particular manner so long as the records maintained substantiate his or her entitlement to the credit. Suder v. Commissioner, at *55. Under Cohan v. Commissioner, 39 F.2d at 543-544, ifa taxpayer claims a deduction or

1.6001-1(a), (e), In- come Tax Regs. In certain circumstances, the Court may approximate the amount ofan expense ifthe taxpayerproves it was incurred but cannot substantiate the exact amount. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). But - 7 - [*7] the taxpayermust provide some basis for such an estimate. Vanicek

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Certain expenses specified in - 8 - section 274, such as vehicle expenses, are subject to strict substantiation rules. Secs. 274(d)(4), 280F(d)(4)(A)(i). In deducting vehicle expenses, in lieu of calculating expenses using actual expenditures, a taxpayermay use a standard mileage rate as

5See, e.g., sec. 274(d); see also Fleming v. Commissioner, T.C. Memo. 2010-60, 2010 WL 1222276, at *2-*3; sec. 1.274-5T, Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). - 6 - [*6] that the addition to tax should not apply.6 Mr. Philbrick filed his 2000 return on October 27, 2009. Therefore, the Commissioner met his burden

According to respondent, the rental loss incurred for each year is deductible only as allowable under section 469--a point petitioners do not dispute.4 In general and as relevant here, that section provides that an individual is not entitled to a deduction for a loss from a passive activity.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

1.6001-1(a), Income Tax Regs. When a taxpayer establishes that he or she paid or incurred a deductible expense but does not establish the amount ofthe expense, we may estimate the amount allowable in some circumstances. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). There must be sufficient evidence in the record, however, to pe

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

1.6001-1(a), Income Tax Regs. In the event a taxpayer establishes that he has incurred a deductible expense but is unable to substantiate the precise amount, the Court may approximate the amount ofthe deduction, bearing heavily against the taxpayerwhose inexactitude is ofhis own making. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 19

. 1111, 1123 (1983). II. Sole Proprietorship Income Gross income includes all income from whatever source derived, see sec. 61(a), and taxpayers are required to keep books and records sufficient to establish their Federal income tax liabilities, see sec. 6001; DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), aff'd, 959 F.2d 16 (2d Cir. 1992); see also sec. 1.6001-1(a), (b), (e), Income Tax Regs. Ifa taxpayer fails to maintain adequate records, the Commissioner may determine the taxpayer's income

elch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are a matter oflegislative grace, and the burden of showing entitlement to a claimed deduction is on the taxpayer.3 Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); see also sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd per curiam, 540 F.2d 821 (5th Cir. 1976). Section 162 allows a taxpayerto deduct all ordinary and necessary expenses paid or incurred by the taxpayer in carrying on a trade or business,

1.6001-1(a), Income Tax Regs. In addition, the taxpayerbears the burden of substantiating the amount and purpose ofthe item for the claimed deduction. See Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). A. State Income Taxes Section 164(a)(3) provides that State income taxes are allow

1.6001-1(a), (e), Income Tax Regs. Passenger automobiles and any other property used as a means oftransportation are "listed property" under section 280F(d)(4). Section 274(d) disallows any deduction with respect to listed property unless the taxpayer adequately substantiates: (1) the amount ofthe underlying expense, (2) the time an

1.6001-1(a), Income Tax Regs. When a taxpayer fails to keep sufficient books ofaccount or such books ofaccount do not clearly reflect income, the Commissioner is authorized to determine his or her income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); Petzoldt v. Commissioner, 92 T.C

1.6001-1(a), (e), Income Tax Regs. Passenger automobiles and any other property used as a means oftransportation are "listed property" under section 280F(d)(4). Section 274(d) disallows any deduction with respect to listed property unless the taxpayer adequately substantiates: (1) the amount ofthe underlying expense, (2) the time an

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's reconstruction ofincome "need only be reaso

At trial petitioners used summaries based on a contemporaneously maintained calendar, credit card statements, and testimony to - 11 - [*11] substantiate employee business expenses. In order for expenditures to be deductible, a taxpayer must show that the expenditures were made and proximately related to the business and that they were o

1.6001-1(a), (e), Income Tax Regs. Automobile expense deductions are subject to the strict substantiation requirements ofsection 274(d). Section 274(d)(4) provides, among other things, that no deduction may be allowed with respect to any property listed in section 280F(d)(4) unless the taxpayer establishes: (A) the amount ofthe expe

31.6011(a)- 1(a)(1), 31.6011(a)-3, Employment Tax Regs. (requiring employers to file returns under FICA and FUTA). Petitioner did not properly challenge the underlying liabilities during the section 6320/6330 hearing, and we do not address them here." See Pough v. Commissioner, 135 T.C. at 349 (holding that the taxpayer did not pro

1.6001-1(a), Income Tax Regs. We may estimate some types ofbusiness expenses, but only if the taxpayerprovides at least some evidence to support an estimate and only ifwe are convinced from the record that he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Blythe v. Commissioner, T.C. Memo. 1999-11. Some ex

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C.

Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are a matter oflegislative grace, and the burden of showing entitlement to a claimed deduction is on the taxpayer. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); see also sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). However, the burden ofproofshifts to the Commissioner as to any factual issue relevant to a taxpayer's liability for income tax where the taxp

1.6001-1(a), Income Tax Regs.; see New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Ifthe taxpayer is able to establish that he or she paid or incurred a deductible expense but is unable to substantiate the precise amount, the Court generally may approximate the deductible amount, but only if the taxpayerpresents suffici

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutoryprovision and must further substantiate that the

Had petitioner kept accurate records of his business income and expenses, which section 6001 required him to do, non- receipt ofthe Forms 1099-MISC would not have mattered.

ce ofhis employment is deductible under * * * [the predecessor ofsection 162]."), aKg T.C. Memo. 1958-60. When called upon by the Commissioner, a taxpayermust substantiate his expenses. M g, Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. - 8 - [*8] 1.6001-1(a), Income Tax Regs. Moreover, some expenses, including those relating to travel, meals, and entertainment, are subject to heightened substantiation requirements. See sec. 274(d). Petitioner has failed to carry her

In certain situations we may estimate the amount ofa reduction in income even ifthe taxpayer fails to keep records. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). However, even in those situations we must have a basis for making such an estimate. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). We have no basis for esti

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), afCd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. As a general rule, ifa taxpayerprovides sufficient evidence that the taxpayerhas incurred a trade or business expense contemplated by section 162(a), b

1.6001-1(a), Income Tax Regs. ¹°Sec. 1.6001-1(e), Income Tax Regs. - 13 - [*13] gifts, and listed property under section 280F(d)(4).¹7 For the years in issue listed property included passenger automobiles, any other property used as a means oftransportation, any property ofa type generally used for purposes of entertainment, recrea

1.6001-1(a), (e), Income Tax Regs. In the case ofexpenses not covered by section 274(d), the Court may estimate the amounts of allowable deductions when there is evidence that the taxpayer incurred deductible expenses. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). To do so, however, the Court must have some basis on wh

7491(a) provides that if, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability ofthe taxpayer for any tax imposed by subtit.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), afÕl, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. When a taxpayer adequately establishes that he or she paid or incurred a deductible expense but does not establish the precise amount, we may in some circumstances estimate the allowable deduction, bearing heavily ag

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Under the Cohan rule, where a taxpayer is able to demonstrate that he or she has paid or incurred a deductible expense but cannot substantiate the precise amount, the Court may estimate the amount ofthe expense ifthe taxpayerproduces credible evidence providing a basis for the Court to do

6001; see also sec. 1.6001-1(a), Income Tax Regs. Where a taxpayer fails to maintain adequate records, the Commissioner is authorized to compute the taxpayer's income by any method which clearly reflects income. See sec. 446(b); see also Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Respondent relied, in part, on the so-called bank deposi

necessary expenses paid or incurred during the taxable year in carrying on any trade or business". When called upon by the Commissioner, a taxpayer must substantiate his expenses. See, e.g., Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Moreover, certain deductions, including those relating to travel, meals, and entertainment, are subject to heightened substantiation requirements. See sec. 274(d). In deciding whether a - 21 - [*21] taxpa

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), M, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. When a taxpayer adequately establishes that he or she paid or incurred a deductible expense but does not establish the precise amount, we may in some circumstances estimate the allowable deduction, bearing heavily again

1.6001-1(a), Income Tax Regs. Ifa taxpayer fails to maintain the required - 13 - [*13] records, the Commissionermay determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Pursuantto section 6020(b), the Commissioner is authorized to prepare an

166(a)(1). ¹°Sec. 1.166-1(c), Income Tax Regs. "Cooper v. Commissioner, 143 T.C. 194, 216 (2014). - 12 - [*12] taxpayer's trade or business."¹² Taxpayers must treat nonbusiness bad debts as losses from the sale or exchange ofa short-term capital asset and can deduct the debt only for the year in which the debt becomes wholly worth

Respondent established that petitioners failed to maintain records as required by section 6001 and failed to substantiate items properly.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayerclaiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

1.6001-1(a), Income Tax Regs. Real Estate Taxes Taxpayers may deduct State and local real propertytaxes paid or accrued within the taxable year. Sec. 164(a). Petitioners claimed a $6,347 deduction for real estate taxes on their 2009 return. Petitioners' lender reported to respondent that petitioners paid $3,834.50 in real estate tax

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further 4Petitioners do not

6001; Roberts v. Commissioner, 62 T.C. 834, 836 (1974). The fact that a taxpayer claims a deduction on an income tax return is not sufficientto substantiate the underlying expense. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979). Rather, an income tax return "is merely a statement ofthe * * * [taxpayer's] claim * * * ; it is not presumed to

¹6See Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005) ("[A] shift in the burden ofpreponderance has real significance only in the rare event of an evidentiary tie."), aff'g T.C. Memo. 2003-212. - 28 - [*28] taxpayer does not materiallyparticipate." Taxpayers have a passive loss if their aggregate losses from their passive

1.6001-1(a), Income Tax Regs. II. Charitable Contributions Section 170(a)(1) allows as a deduction any charitable contribution made within the taxable year. Taxpayers must satisfy certain statutory and regulatory substantiation requirements in order to deduct charitable contributions. See id.; sec. 1.170A-13, Income Tax Regs. The na

1.6001-1(a), Income Tax Regs. 3Because ofcertain modifications that respondent made to the revenue agent's bank deposits analysis, the determinations in the notice ofthe respective amounts ofunreported income for Mr. Sodipo's taxable years 2005, 2006, and 2007 are not the same as the conclusions ofthe revenue agent regarding the res

Deductions The Code allows a deduction for "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".¹¹ Ordinary expenses are those transactions that are of"common or frequent occurrence in the type ofbusiness involved."¹² Necessary expenses are "appropriate and helpful" to

Deductions The Code allows a deduction for "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".¹¹ Ordinary expenses are those transactions that are of"common or frequent occurrence in the type ofbusiness involved."¹² Necessary expenses are "appropriate and helpful" to

6001; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Petitioner has neither alleged that section 7491(a) applies nor established his compliance with its requirements. Therefore, the burden ofproof remains with petitioner. III. Substantiation Respondent argues that petitioner's testimony is inconsistent and his inability to substa

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975); sec. 1.6001-1(a)-(e), Income Tax Regs. And for some kinds ofexpenses, those records must be particularly detailed. See sec. 274(d). Car and Truck Expenses We look first at the very large deductions that Laudon claimed for his travel throughout and between the Dakotas and Minnesota. The

6001; Roberts v. Commissioner, 62 T.C. 834, 836 (1974). Under Cohan v. - 40 - [*40] Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), ifa taxpayer claims a deduction but cannot fully substantiate the underlying expense, the Court may generally approximate the allowable amount, "bearing heavily ifit [so] chooses upon the taxpayerwhose inexact

6001; Roberts v. Commissioner, 62 T.C. 834, 836 (1974). The fact that a taxpayer - 30 - [*30] claims a deduction on an income tax return is not sufficientto substantiate the underlying expense. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979). Rather, an income tax return "is merely a statement ofthe * * * [taxpayer's] claim * * * ; it is n

6001; Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Under certain circumstances, ifa taxpayer establishes entitlement to a deduction but not the amount, the Court may estimate the amount allowable. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We generally will not estimate a deductibl

necessary expenses paid or incurred during the taxable year in carrying on any trade or business". When called upon by the Commissioner, a taxpayer must substantiate his expenses. See, e.g., Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Moreover, certain deductions, including those relating to travel, meals, and entertainment, are subject to heightened substantiation requirements. See sec. 274(d). In deciding whether a - 21 - [*21] taxpa

1.6001-1(a), Income Tax Regs. - 7 - [*7] Generally, the Commissioner bears the burden ofproduction with respect to any penalty or addition to tax. Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001). To meet that burden, the Commissioner must come forward with sufficient evidence indicating that it is appropriate to impo

6001; Petzoldt v. Commissioner, 92 T.C. 661, 686 (1989); sec. 1.446-1(a)(4), Income Tax Regs. When a taxpayer fails to keep adequate books and records, the Commissioner is authorized to determine the existence and amount ofthe taxpayer's income by any method that clearly reflects income. Sec. 446(b); Petzoldt v. Commissioner, 92 T.C. at 693. T

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. However, ifa taxpayer establishes that deductible expenses were incurred but fails to establi

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. However, ifa taxpayer establishes that deductible expenses were incurred but fails to establi

laimed deductions. A taxpayer may deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business, sec. 162(a), but the taxpayermust maintain sufficient records to substantiate the expenses claimed, sec. 6001; sec. 1.6001-1(a), Income Tax Regs. To be a trade or business expense - 6 - [*6] the expenditure must be "directly connected with or pertaining to the taxpayer's trade or business". Sec. 1.162-1(a), Income Tax Regs. Generally, taxpayers may

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. However, ifa taxpayer establishes that deductible expenses were incurred but fails to establi

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount, the Court may estimate the deductible amoun

1.6001-1(a), (e), Income Tax Regs.; see also Hradesky v. Commissioner, 65 T.C. 87, 90 (1976), aff'd, 540 F.2d 821 (5th Cir. 1976). II. Perception ofWitnesses We observe the sincerity, candor, and demeanor ofeach witness to evaluate his testimony and to assign weight thereto for the purpose offinding disputed facts. HIE Holdings, Inc

6001; Roberts v. Commissioner, 62 T.C. 834, 836 (1974). The fact that a taxpayer claims a deduction on an income tax return is not sufficientto substantiate the underlying expense. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979). Rather, an income tax return "is merely a statement ofthe * * * [taxpayer's] claim * * * ; it is not presumed to

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. However, ifa taxpayer establishes that deductible expenses were incurred but fails to establi

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). - 12 - [*12] Normally, the Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. . 1930); Vanicek v. Commissioner, 85 T.C. 731,

1.6001-1(a), Income Tax Regs. Ifa taxpayer fails to maintain the required - 13 - [*13] records, the Commissionermay determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Pursuantto section 6020(b), the Commissioner is authorized to prepare an

Per IRC §§ 6001 and 6011, Petitioner is not a person required by law to file a tax return because he has no statu- tory liability for the payment ofany tax.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). I. Passive Loss Rules Taxpayers are allowed deductions for certain business and investment expenses under sections 162 and 212. Section 469(a)(1), however, generally disallows for the

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutoryprovision and must further substantiate that

Appeals Office to clarify the record * * *, the Appeals Office is not limited to whatthe Appeals Office considered during the first administrative hearing." (citing Hoyle v. Commissioner, 136 T.C. at 468)), supplementing 134 T.C. 1 (2010); see also sec. 6001; secs. 31.6011(a)-1(a)(1), 31.6011(a)-3, Employment Tax Regs. (requiring employers to file returns under FICA and FUTA). Petitioner therefore did not properly challenge the underlying liabilities during the section 6320/6330 hearing, and we

1.6001-1(a), Income Tax Regs. To substantiate medical and dental expenses, a taxpayer must furnish the name and address ofeach payee, the amount ofthe expense, and the date paid. Sec. 1.213-1(h), Income Tax Regs. - 17 - [*17] Petitioner claimed itemized deductions for medical and dental transportation expenses of$14,043 for the tax

1.6001-1(a), Income Tax Regs. A filed Federal income tax return does not provide adequate substantiation ofnet operating loss deductions. Lawinger v. Commissioner, 103 T.C. 428, 438 (1994). 5(...continued) No. 111-92, sec. 13(a), 123 Stat. at 2992, amended sec. 172(b)(1)(H)(i) to permit a taxpayerto elect to carry back a net operati

1.6001-1(a), Income Tax Regs. - 7 - [*7] Generally, the Commissioner bears the burden ofproduction with respect to any penalty or addition to tax. Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001). To meet that burden, the Commissioner must come forward with sufficient evidence indicating that it is appropriate to impo

When a taxpayerkeeps no books ofaccount or keeps books that are demonstrably - 11 - [*11] inaccurate, the IRS may determine his income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Where a taxpayerhas poor records and large unexpla

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976). All the same, the Court may apply the longstanding Cohan rule to estimate an expense that a taxpayer establishes is deductible but does not otherwise substantiate the precise amount of. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).

1.6001-1(a), Incorne Tax Regs. Section 7491(a)(1) provides an exception that shifts the burden ofproofto the Commissioner as to any factual issue relevant to a taxpayer's liability if: (1) the taxpayer introduces credible evidence with respect to that issue, and (2) the - 23 - [*23] taxpayer satisfies other conditions, including su

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Respondent determined that petitioner improperly claimed a passthrough loss deduction of$516,609 from MCM for 2001. The loss resulted from a deduction of$554,622 against $38,013 ofincome that MCM reported for that year. Petitioner concedes th

1.6001-1(a), (e), Income Tax Regs. In their opening briefpetitioners argue, for the first time, that the burden of proofshould shift to respondent pursuant to section 7491(a) with regard to the allocation ofbusiness use ofthe Navigator. Section 7491(a) provides an exception that shifts the burden ofproofto the Commissioner as to any

1.6001-1(a), (e), Income Tax Regs. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), allows the Court to estimate the amounts ofsome deductible expenses. The Cohan rule is not applicable to expenses under section 274(d). See Sanford v. Commissioner, 50 T.C. 823, 827- 828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). Under

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income TaxRegs. As a general rule, ifa taxpayer provides sufficient evidence that the taxpayerhas incurred a trade or business expense contemplated by section 162(a), b

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs.; see also Lyseng v. Commissioner, T.C. Memo. 2011-226, slip op. at 8 ("In general, taxpayers must substantiate claimed deductions with evidence such as invoices or receipts that establish that the expenses were actually incurred[.]"). They also have

Ifthe taxpayer fails to do this, then the Commissioner may reconstruct the taxpayer's income through the use ofany reasonable method. See Holland v. United States, 348 U.S. 121 (1954); Giddio v. Commissioner, 54 T.C. 1530, 1532-1533 (1970). The Commissioner's reconstruction need not be exact, but it must be reasonable in the light ofall

When a taxpayerkeeps no books ofaccount or keeps books that are demonstrably - 11 - [*11] inaccurate, the IRS may determine his income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). Where a taxpayerhas poor records and large unexpla

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Section 274(d) imposes more rigorous substantiation requirements for ex- penses pertaining to

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 2In the notice respondent allowed deductions of$36.70 and $467 for car and truck expenses for 2009 and 2010, respectively, which according to respondent represents the portion ofthe car and truck expenses attributable to petitioner's attendance at continuing p

1.6001-1(a), Income Tax Regs. We consider first petitioners' position that, in addition to the charitable contribution deduction that they had claimed in their 2011 return and that respondent did not disallow in the notice, they are entitled to a charitable contribution deduction of$3,976.514 for contributions that they claim they m

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs.; see also Lyseng v. Commissioner, T.C. Memo. 2011-226, slip op. at 8 ("In general, taxpayers must substantiate claimed deductions with evidence such as invoices or receipts that establish that the expenses were actually incurred[.]"). They also have

Jacobs neither testified or gave us any other proofthat he was entitled to deduct additional depreciation for tax year 2009 on the truck that he sold back in 2006. We must rule in favor ofthe Commissioner on this one. That leaves only the question ofwhetherJacobs could claim anyper diem meal expenses for 2009. Section 162(a)(2) lets a t

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the -- deduction is allowable pursuantto a statutoryprovision and must further substantiate that t

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. They also have the burden ofproving their entitlement to deductions claimed. Rule 142(a); see N w Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), § T.C. Memo. 1972-133; see also L

6001; Roberts v. Commissioner, 62 T.C. 834, 836 (1974). Ifa taxpayer's records are lost or destroyed because ofcircumstances beyond his control, the taxpayermay instead - 31 - [*31] substantiate the expenses with other credible evidence. See Malinowski v. Commissioner, 71 T.C. at 1124-1125. Under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Normallythe Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). T

6001; Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Certain ofpetitioner's alleged expenses, including his automobile and travel-related expenses for 2009, totaling $16,532, are subject to the strict substantiation requirements ofsection 274(d). See Sanford v. Commissioner, 50 T.C

necessary expenses paid or incurred during the taxable year in carrying on any trade or business". When called upon by the Commissioner, a taxpayer must substantiate his expenses. See, e.g., Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Moreover, certain deductions, including those relating to travel, meals, and entertainment, are subject to heightened substantiation requirements. See sec. 274(d). In deciding whether a - 21 - [*21] taxpa

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayerclaiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

6001; Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. However, in certain circumstances, ifa taxpayer establishes entitlementto a deduction, but not the amount thereof, the Court may estimate the amount allowable, Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), ifthe taxpayer provides some

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Section 162(a)(1) allows taxpayers to deduct "ordinary and necessary expenses", including a "reasonable allowance for salaries or other compensation for personal services actually rendered". Thus, compensation is deductible only if (1) reasonable in amount and (2) paid or incurred for ser

6001; Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). In some circumstances, this Court may estimate the amount ofa deductible expense ifa taxpayer furnishes documentation - 14 - [*14] establishing its existence but is unable to substantiate the precise amount. See Cohan v. Commiss

6001; see also sec. 1.6001-1(a), Income Tax Regs. Iftaxpayers cannot produce records ofactual expenditures affecting basis, we may estimate the amounts ofexpenses ifthey - 20 - [*20] provide credible evidence that establishes a factual basis for the estimate. See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). A. Capitalized Development Co

6001; Meneguzzo v. Commissioner, 43 T.C. at 831-832. When a taxpayerreceives tips daily, he or she is required to keep an accurate and contemporaneous record ofsuch income. Ross v. Commissioner, T.C. Memo. 1989-682, aff'd withoutpublished opinion, 967 F.2d 590 (9th Cir. 1992); Biddle v. Commissioner, T.C. Memo. 1989-397; sec. 1.6001- 1(a), Inc

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that

6001; Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). In some circumstances, this Court may estimate the amount ofa deductible expense ifa taxpayer furnishes documentation - 14 - [*14] establishing its existence but is unable to substantiate the precise amount. See Cohan v. Commiss

Section 162(a) provides a deduction for certain business-related expenses. To qualify for the deduction under section 162(a), "an item must (1) be 'paid or incurred during the taxable year,' (2) be for 'carrying on any trade or business,' (3) be an 'expense,' (4) be a 'necessary' expense, and (5) be an 'ordinary' expense." Commissionerv.

Ifa taxpayer fails to do this, then the Commissioner may reconstruct the taxpayer's income using any reasonable method. See Holland v. United States, 348 U.S. 121, 130-131 (1954); Giddio v. Commissioner, 54 T.C. 1530, 1532-1534 (1970). The bank deposits method has long been upheld as a reasonable means of determining income where a taxpa

Section 163(h)(1), however, provides that, in the case ofa taxpayer other than a corporation, no deduction is allowed for personal - 5 - interest.

6001; Roberts v. Commissioner, 62 T.C. at 836. Claiming a deduction on an income tax return is not sufficient to substantiate the underlying expense. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979). Rather, as previously noted, an income tax return "is merely a statement ofthe * * * [taxpayer's] claim * * * ; it is not presumed to be correc

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 6Although petitioner has not asserted that the burden ofproofas to any relevant factual issue should shift to respondent under sec. 7491(a), respondent bears the burden ofproving that petitioner is not entitled to a dependency exemption deduction

1.6001-1(a), Income Tax Regs. II. Alimony Deduction Section 215(a) allows as a deduction an amount equal to the alimony or separate maintenance payments paid by an individual during such individual's tax year. Section 71(b)(1) defines an alimony or separate maintenance paymentto be any payment made in cash that satisfies the followi

6001; see also sec. 1.6001-1(a), Income Tax Regs. Iftaxpayers cannot produce records ofactual expenditures affecting basis, we may estimate the amounts ofexpenses ifthey - 20 - [*20] provide credible evidence that establishes a factual basis for the estimate. See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). A. Capitalized Development Co

1.6001-1(a), (e), Income Tax Regs.; see also Hradesky v. Commissioner, 65 T.C. 87, 90 (1976), aff'd, 540 F.2d 821 (5th Cir. 1976). II. Perception ofWitnesses We observe the sincerity, candor, and demeanor ofeach witness to evaluate his testimony and to assign weight thereto for the purpose offinding disputed facts. HIE Holdings, Inc

1.6001-1(a), Income Tax Regs. Likewise, the taxpayer is obliged to demonstrate entitlementto an advantageous filing status, such as head ofhousehold. See sec. 152(c)(3)(A); Smith v. Commissioner, T.C. Memo. 2008-229. - 5 - [*5] II. Dependency Exemption Deductions The Internal Revenue Code allows as a deduction an exemption for each

1.6001-1(a), Income Tax Regs. Additionally, taxpayers bear the burden ofsubstantiating the amount and purpose ofeach item for which they claim a deduction. Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976).6 Petitioners claimed a $43,503 reduction from gross income for the cost of goods

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

Commissioner, 112 T.C. 183, 186 (1999); sec. 1.6001-1(a), Income Tax Regs. Section 7491(a) provides an exceptionthat can shift the burden ofproofto the Commissioner ifthe taxpayer introduces credible evidence regarding relevant factual issues and has: (1) complied with all relevant substantiation requirements; (2) complied with a

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

These records should be-sufficientto establish the amount ofthe gross income or other items shown on the tax return. Sec. 1.6001-1(a), Income Tax Regs. The taxpayeFshall retain these records as long as they may become material in the administration ofthe Internal Revenue Code. Sec. 1.6001- 1(e), Income Tax Regs. II. Unreported Income Sec

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), Income Tax Regs. The failure to keep - 10 - [*10] and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Gross income includes all income from whatever source derived, including compensation for services, fees, commissions, fringe benefits, sim

1.6001-1(a), (e), Income Tax Regs. The taxpayerbears the burden ofproving entitlementto any deductioñ claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Deputy v. dù Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co! v. Helvering, 292 U.S. 435, 440'(1934); see sec. - 4 - [*4] 7491(a)(2) (requiring compli

406, 408 ("[T]he 2001 proposed - 56 - [*56] regulations do not contain a specific recordkeeping requirementbeyondthe requirements set out in section 6001 and the regulations thereunder.").

¹°Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). ¹¹Vanicekv. Commissioner, 85 T.C. 731, 742-743 (1985). ¹²Sec. 172(c) and (d). - 8 - [*8] completely absorbed, it may be carried forward up to 20 years.'³ Under section 172(b)(3), a taxpayermay elect to waive the carrybackperiod and carrythe entire loss forward. However, the e

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

- 6 - [*6] stipulated information returns. Respondent allowed deductions only for portions ofthese items for 2006 and disallowed them in their entirety for 2007 and 2008. A taxpayermay deduct interest paid or accrued on acquisition indebtedness or home equity indebtedness with respect to a qualified residence.7 A "qualified residence" i

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Martell v. Commissioner, T.C. Memo. 2013-115, at *24; sec. 1.6001-1(a), (e), Income Tax Regs. Taxpayers must maintain records relating to their income and expenses and must prove their entitlementto all claimed deductions, credits, and expens

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. -11- 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuantto a statutoryprovision and must further substantiate that

1.6001-1(a), (e), Income Tax Regs. A. Personal Use ofthe Lemoore Property Section 212 allows for a deduction ofordinary and necessary expenses paid or incurred while managing or maintaining property held out for the production of income. Where a taxpayeruses a dwelling as a personal residence during the taxable year, however, deduct

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. - 8 - 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutoryprovision and must further substantiate t

When a taxpayerkeeps no books ofaccount or keeps books that are de- monstrably inaccurate, the IRS may determine his income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). When a taxpayer fails to maintain or produce adequate records,

Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business.2 Generally, no deduction is allowed for personal, living, or family expenses, except where specifically authorizedby statute. See sec. 262. The 2An employee's performance ofservices is

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Certain expenses specified in section 274, such as vehicle expenses, are subject to strict substantiation rules. Secs. 274(d)(4), 280F(d)(4)(A)(i). - 14 - [*14] To meet these strict substantiation rules, a taxpayermust substantiate by adequate records or by sufficient evidence corroborat

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

Petitioners argue that Rock Ledge had the same C.P.A. as the dealerships. But as previously discussed, even ifthe same C.P.A. did prepare petitioners' returns with respect to Rock Ledge, it was Mrs. Price who kept the books and records, ofRock Ledge,. not Mr. Murphy. Mr. Murphy did not audit these books and records and he did not prepare

1.6001-1(a), Income Tax Regs. We turn initially to the issue presented with respect to Apple Pie Mortgage. As we understandpetitioners' position, petitioners maintain that theyhave a loss ¹#In the notice, respondent determined to increase petitioners' tax fortheir taxable year 2008 by $7,800 as a result ofrespondent's determinationt

Omitted Income Where a taxpayer fails to keep sufficient records under section 6001, the Commissioner may compute taxable income through a method that clearly reflects income.4 One such method involves combining a taxpayer's accretions to wealth by examining his bank deposits and cash expenditures.

1.6001-1(a), Income Tax Regs. It is Mr. Dickinson's position that the DuPont funds in question were loans that he made to Mr. DuPont and that became worthless in 2007. According to Mr. Dickinson, those worthless loans constitute bad debts that are not nonbusiness bad debts under section 166(d)(2) and that are deductible under sectio

406, 408 ("[T]he 2001 proposed - 56 - [*56] regulations do not contain a specific recordkeeping requirementbeyondthe requirements set out in section 6001 and the regulations thereunder.").

Section 162(a) provides that "[t]here shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".

When a taxpayerkeeps no books ofaccount or keeps books that are de- monstrably inaccurate, the IRS may determine his income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). When a taxpayer fails to maintain or produce adequate records,

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), (e), Income Tax Regs.; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The failure to keep and present such records counts heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, at *17. Section 274(d) imposes more rigorous substantiation requirements for ex- penses pertaining t

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). These records must be retained for as long as the contents may become material and must be kept available for inspection. Sec. 1.6001-1(e), Income Tax Regs. In.some instances, the Cou

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), Income Tax Regs. We turn first to whetherMs. Chow engaged in her 2006 gambling activities, 2007 gambling activities, and 2008 gambling activities with an actual and honest objective ofmaking a profit.'2 Before consideringthat issue, we note that this is ¹²We must address whether Ms. Chow engaged in her 2006 gambling act

1.6001-1, Income Tax Regs. The requirement for cooperation extends through the pretrial proceedings. See, e.g., Rolfs v. Commissioner, 135 T.C. 471, 483 (2010), affd, 668 F.3d 888 (7th Cir. 2012). A taxpayer seeking to shift the burden ofproof pursuantto section 7491(a)(1) has the burden ofshowing that he has satisfied the section 7

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuantto a statutory provision and must further substantiate that the

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

d deductions. Rule 142(a); see INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Taxpayers are required to identify each deduction, maintain adequate records, substantiate each deduction, _9- [*9] and show that they have met all requirements.4 Sec. 6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. I. Real Estate Activity A taxpayer is generally allowed deductions for certain business and profit- seeking investment expenses. See secs. 162, 212. Se

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), (e), Income Tax Regs. In other words, the taxpayer bears the burden ofproving entitlement to the deductions claimed, and this includes the burden ofsubstantiation. Rule 142(a); Hradesky v. - 7 - Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). II. Real Estate Professional Section

408(d)(3)(A)(i) and (ii); see also Schoofv.

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

Section 162(a) provides a deduction for certain business-related expenses. 5(...continued) Rule 149(b). To qualify for the deduction under section 162(a), "an item must (1) be 'paid or incurred during the taxable year,' (2) be for 'carrying on any trade or business,' (3) be an 'expense,' (4) be a 'necessary' expense, and (5) be an 'ordi

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

Petitioners argue that Rock Ledge had the same C.P.A. as the dealerships. But as previously discussed, even ifthe same C.P.A. did prepare petitioners' returns with respect to Rock Ledge, it was Mrs. Price who kept the books and records, ofRock Ledge,. not Mr. Murphy. Mr. Murphy did not audit these books and records and he did not prepare

Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. The taxpayerhas the burden ofproving his or her deductions claimed. See New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), aff'g T.C. Memo. 1972-133. Petitioner claimed truck exp

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). As an exception to the general rule, the Commissioner bears the burden of proofas to "new matter" raised in the answer that was not included in the notice of deficiency. See Rule 142(a)(1). For the new matter in this case, see supra note 2, the Commissioner has met his burden, as is expla

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. The taxpayerhas the burden of _ 4 _ proving his or her deductions claimed. See New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), aff'g T.C. Memo. 1972-133. Petitioner claimed c

406, 408 ("[T]he 2001 proposed - 56 - [*56] regulations do not contain a specific recordkeeping requirementbeyondthe requirements set out in section 6001 and the regulations thereunder.").

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), Income Tax Regs. Under certain circumstances, ifclaimed deductions are not adequately substantiated, we may estimate them, provided we are convinced that the taxpayer has incurred the expenses and we have a basis upon which to make an estimate. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. C

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). - 12 - [*12] A. 2004 On its 2004 tax return Briley Builders claimed a total of$1,431,650 of deductions. Respondent disallowed $1,399,339 ofthe claimed deductions on account ofpetitioners' failure to substantiate the expenses. Petitioners

Ifa taxpayer fails to maintain the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner has great latitude in reconstructing a taxpayer's income, and the reconstruction "need only be

1.6001-1, Income Tax Regs. Mr. Carreon maintained an extensive QuickBooks file showing where his personal account, Bancard Solutions', and Merchants, Inc.'s checks and credit card transactions were being sent. The QuickBooks file was maintainedto show not only where the money was going, but also the type ofexpense. This file was mai

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Hiabee v. Commissioner, 116 T.C. at 440. When a taxpayer establishes that he or she paid or incurred a deductible expense but does not establish the amount ofthe expense, we may estimate the amount of the deductible expense (Cohan rule). Cohan v. Commissioner, 39 F.2d 540, 542- 544 (

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction must demonstrate that the deduction is allowable pursuantto a statutoryprovision and must further substantiate thatthe expense to which the -10- deduc

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Hradesky v. Commissioner, 65 T.C. at 90. The Court need not accept a taxpayer's self-serving testimonywhen the taxpayer fails to present corroborative evidence. Beam v. Commissioner, T.C. Memo. 1990-304 (citing Tokarski v. Commissioner, 87 T.C. 74, 77 (1986)), aff'd withoutpublished opinion, 956 F.2d 1166 (9th Cir. 1992). The burden may

1.6001-1(a), Income Tax Regs. The taxpayer bears the burden ofsubstantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976). In general, no deduction is permitted for personal, living, or family expenses. Sec. 262(a). Certain types ofdeductions, including those relating to "listed property", re

1.6001-1(a), Income Tax Regs. On brief, petitionertakes the position that he is entitled for his taxable year 2009 to deduct the entire amount ofthe alleged outstanding debt (i.e., approxi- mately $153,000) as a so-called business bad debt.6 In support ofthat position, 6The record does not establish why petitionerreported only $3,00

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuantto some statutoryprovision and must further substantiate that t

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), Income Tax Regs. We turn initiallyto the disallowed 2007 Schedule C expenses of $338,047.76. It is petitioner's position that he is entitled to deduct those expenses under section 162(a). In support ofthat position, petitioner relies primarily on (1) certain schedules showing by month and type ofexpense the total amount

1.6001-1, Income Tax Regs. Mr. Carreon maintained an extensive QuickBooks file showing where his personal account, Bancard Solutions', and Merchants, Inc.'s checks and credit card transactions were being sent. The QuickBooks file was maintainedto show not only where the money was going, but also the type ofexpense. This file was mai

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), (e), Income Tax Regs. Petitioner has not asserted that the burden ofproofas to any relevant factual issue should shift to respondentunder section 7491(a). See sec. 7491(a)(1) and (2); Hiebee v. Commissioner, 116 T.C. 438, 442-443 (2001). Deductions are a matter oflegislative grace, and, asjust indicated, the taxpayerbea

a taxpayer's return is not self- proving as to the truth ofits contents), aff'd, 175 F.2d 500 (2d Cir. 1949). A taxpayer is required to maintain records sufficientto substantiate deductions claimed by the taxpayer on his or her return. See generally sec. 6001 _ 9 _ ("Everyperson liable for any tax imposed by this title, or for the collection thereof, shall keep such records * * * and comply with such rules and regulations as the Secretary may from time to time prescribe."); sec. 1.6001-1(a), Inc

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction must demonstrate that the deduction is allowable pursuantto a statutoryprovision and must further substantiate thatthe expense to which the -10- deduc

These records should be-sufficientto establish the amount ofthe gross income or other items shown on the tax return. Sec. 1.6001-1(a), Income Tax Regs. The taxpayeFshall retain these records as long as they may become material in the administration ofthe Internal Revenue Code. Sec. 1.6001- 1(e), Income Tax Regs. II. Unreported Income Sec

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.469-5T(a)(3), Temporary Income Tax Regs., 53 Fed. Reg. 5726 (Feb. 25, 1988). 8We interpretthis phrase to mean that he does not have to prove a negative. - 16 - [*16] taxpayer is not required to prove a negative but rather must adduce positive evidence to establish his entitlementto a particular deduction.9 Although in some situa

ently shredded their receipt from the Salvation Army. Yet on their Form 8283 petitioners did not even describe or otherwise identify the type or nature ofthe property donated, and at trial petitioner spoke only of"stuff" and "goods". 8 See generally sec. 6001 ("Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records * * * and comply with such rules and regulations as the Secretary may from time to time prescribe."); sec. 1.6001-1(a), Income T

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; 3Respondent now concedes that petitioners are entitled to: (1) a $4,020 deduction for medical and dental expenses; (2) a $9,820 deduction for charitable contributions; and (3) a miscellaneous itemized deduction of$143 after taking into account allowable unreimbursed employee business expenses. 4Petitioners do not claim that the provision

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutoryprovision and must further substantiate that

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd, 540 F.2d 821 (5th Cir. -7- 1976); Gorokhovskyv. Commissioner, T.C. Memo. 2012-206, aff'd, __Fed. Appx. _ (7th Cir. Oct. 22, 2013); sec. 1.6001-1, Income Tax Regs. Cost ofgoods sold is subtracted from gross receipts to determine gross income. Sec. 1.61-3, Income Tax Regs. Such costs

ee INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Taxpayers are required to identify each deduction, maintain adequate records, substantiate each deduction, 8(...continued) $1,905. - 10 - [*10] and show that they have met all requirements.9 Sec. 6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. To prove a deductible expense, the taxpayermust establish with credible evidence not only the facts ofthe expenditure, but also the business purpose or

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. Taxpayers may de( uct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C. 305, 313 (2004). Genera ly, the performance ofservices

6001; Hradeskyv. Commissioner, 65 T.C. 87, 90 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1, Income Tax Regs. i Section 162(a) provides a deduction for certain ordinary and necessary business expenses. Petitioner asserts he paid $25,000 ofcontract labor expenses in 2007 to a consultant from El Salvador, Dina E. Fernandez Sanchez.

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976); Gorokhovskyv. Commissioner, T.C. Memo. 2012-206, aff'd, __ Fed. Appx. _, 2003 WL 5716541 (7th Cir. Oct. 22, 2013); sec. 1.6001-1, Income Tax Regs. II. Contract Labor Deduction TMS contracted out labor to AICR employees in 2010, and TMS paid AICR $65,000

1.6001-1(a), (e), Income Tax Regs. In other words, the taxpayerbears the burden ofproving entitlementto the deductions he claimed, and this includes the burden of substantiation. Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). The factthat a taxpayer claims a deduction on

When a taxpayerkeeps no books ofaccount or keeps books that are de- monstrably inaccurate, the IRS may determine his income "under such method as, in the opinion ofthe Secretary, does clearly reflect income." Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). When a taxpayer fails to maintain or produce adequate records,

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

1.6001-1(a), Income Tax Regs. In certain limited c rcumstances, section 7491(a)(1) shifts to the Commissionerthe burden ofproofwith respect to factual issues relevant to ascertaining a taxpayer's ax liability. Section 7491 does not affect our analysis in -4- this case because there are no factual issues as to which our holding depe

6001; s_ee Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1976), aff'd, 540 F.2d 821 (5th Cir. 1976). I. Passive Activity Losses Taxpayers are allowed deductions for certain business and investment expenses under sections 162 and 212. Section 469(a), however, generally disallows passive activity losses and credits. A passive activity loss is def

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th4Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). Under certain circumstances,the burden ofproofwith respect to relevant factual issues may shift to the Commissioner under section 7491(a). Petitionerhas neither alleged that section 7

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

406, 408 ("[T]he 2001 proposed - 56 - [*56] regulations do not contain a specific recordkeeping requirementbeyondthe requirements set out in section 6001 and the regulations thereunder.").

1.6001-1(a), Income Tax Regs.; see Hiebee v. Commissioner, 116 T.C. 438, 440 (2001); Rodriguez v. Commissioner, T.C. Memo. 2009-22; Said v. Commissioner, T.C. Memo. 2003-148, aff'd, 112 Fed. Appx. 608 (9th Cir. 2004). Before we discuss petitioner and his spouse's eligibility for the costs of goods sold and the deductions claimed on

1.6001-1(a),' (e), Income Tax Regs. In other words, taxpayers bear the burden ofproving entitlement to the deductions claimed, and this includes the burden of substantiation. Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Section 162(a) provides a deduction for certain b

Omitted Income Where a taxpayer fails to keep sufficient records under section 6001, the Commissioner may compute taxable income through a method that "does clearly 5Rule 142(a); Welch v.

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

6001; Hiebee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), (e), Income Tax Regs. The taxpayerhas the burden of proving her or his deductions claimed. See New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), aff'e T.C. Memo. 1972-133. All ofthe disallowed busine

1.6001-1(a), (e), Income Tax Regs. Petitioner, by his own admission, estimated all ofthe deductions stated on his tax returns, asserting that he lost his records. In an attemptto meet his burden ofsubstantiation, petitioner has presented documents relating to various medical and business expenses. We will not consider additional doc

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

Commissioner, 503 U.S. 79, 84 (1992). The taxpayerbears the burden of substantiatingthe amount and purpose ofeach expense claimed as a deduction, Higbee v. Commissioner, 116 T.C. 438, 440 (2001), and must maintain records relating to such expenses, sec. 6001. An individual performing services as an employee generally may deduct expenses incurred in the performance ofsuch services as itemized deductions on Schedule A. Rodriguez v. Commissioner, at *14-*15. However, unlike Schedule C deductions, S

Omitted Income Where a taxpayer fails to keep sufficient records under section 6001, the Commissioner may compute taxable income through a method that "does clearly 5Rule 142(a); Welch v.

1.6001-1, Income Tax Regs. Mr. Carreon maintained an extensive QuickBooks file showing where his personal account, Bancard Solutions', and Merchants, Inc.'s checks and credit card transactions were being sent. The QuickBooks file was maintainedto show not only where the money was going, but also the type ofexpense. This file was mai

necessary expenses paid or incurred during the taxable year in carrying on any trade or business". When called upon by the Commissioner, a taxpayermust substantiate his expenses. See, e.g., Park v. Commissioner, T.C. Memo. 2012-279, at *4; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Moreover, certain deductions, including those relating to travel, meals, and entertainment, are subject to heightened substantiation requirements. See sec. 274(d). In deciding whether a - 20 - [*20] taxpa

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But "expenditures made in an attemptto obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deductib

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) allows a deduction for all ordinary and necessary business expenses paid or incurred in connection with a trade or business. But “expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deducti

Where the taxpayerhas failed to maintain adequate records as required by section 6001, the Commissioner is authorized to reconstructthe taxpayer's income by any reasonable method that clearly reflects income, including the bank deposits method.

6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Under the familiar Cohan rule, where a taxpayer is able to demonstrate that she has paid or incurred a deductible expense but cannot substantiate the precise amount, the Court may estimate the amount ofthe expense ifthe taxpayerproduces

6001; -6- Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), (e), Income Tax Regs. As a general matter, petitioner asserts that the records substantiating all the deductions at issue were destroyed during Hurricane Sandy. Respondent, however, requested petitioner's documentation

t to any claimed deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Taxpayers are required to identify each deduction, maintain adequate records, substantiate each deduction, and show that they have met all requirements.4 Sec. 6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. Film research expenses Generally, research and experimental expenses cannot be deducted but may be capitalized. See sec. 263A(c). Therefore, absent th

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer - 9 - claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate

Section 162(a) provides a deduction for certain business expenses. In order to qualify for the deduction under section 162(a), "an item must (1) be 'paid or incurred during the taxable year,' (2) be for 'carrying on any trade or business,' (3) be an 'expense,' (4) be a 'necessary' expense, and (5) be an 'ordinary' expense." Commissioner

ed in the notice ofdeficiency by $2.32 because ofrounding. 1°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). "Higbee v. Commissioner, 116 T.C. 438, 440 (2001); see also sec. 6001. - 8 - [*8] Secretary's request.12 Adequate substantiation must establish the nature, amount, and purpose ofa claimed deduction." Various rules govern what is acceptable proofofdeductions. Rule 1002 of the Federal Rules ofEvidence requires

Section 162(a) provides a deduction for certain business- related expenses. In order to qualify for the deduction under section 162(a), "an item must (1) be 'paid or incurred during the taxable year,' (2) be for 'carrying on any trade or business,' (3) be an 'expense,' (4) be a 'necessary' expense, and (5) be an 'ordinary' expense." Comm

Deductions are allowed under section 162 for the ordinary and necessary expënses ofcarrying on an activity that - 19 - constitutes the taxpayer's trade or business. Deductions are allowed under section 212(1) and (2) for expenses paid or incurred in connection with an activity engaged in for the production or collection ofincome, or for

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further - 15 - substantiate

See generally Sam (cid:16)042 Goldberger, Inc.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). - 12 - [*12] II. Net Operating Loss Carryforward for Frexie Petitioner asserts in this proceeding, consistent with his position on his second amended return, that Frexie's net profits for 2004 should be offset by an NOL carryforward. In g

1.6001-1(a), (e), Income Tax Regs. Unreimbursed Employee Business Expenses Deduction A taxpayerwho is an employee may deduct unreimbursed employee expenses as an ordinary and necessary business expense under section 162. Sec. 162(a)(2); Lucas v. Commissioner, 79 T.C. 1, 6 (1982). However, personal expenses are not deductible. Sec. 2

d ending Amount owedi 9/30/2006 $11,315.88 12/31/2006 6,587.53 3/31/2007 17,638.38 6/30/2007 22,415.31 9/30/2007 24,838.26 12/31/2007 1,952.11 3/31/2008 7,868.84 6/30/2008 2,675.92 Total 95,292.23 iThese amounts include interest accrued pursuant to sec. 6001 through July 30, 2009. The issues for decision are: (1) whether petitioner is entitled to contest his underlying liability for the section 6672 trust fund recovery penalties for the periods at issue; and (2) ifpetitioner is entitled to conte

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that th

Ifa taxpayer fails to maintain the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects incorre. See sec. 446(b); Petzoldt v..Commissioner, 92 T.C. 661, 693 (1989). The Co:nmissioner's reconstruction ofincome "need only be reasonable in light ofall surrounding facts and circ

Commissioner, 116 T.C. at 440. Normally, the Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expènse is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). This is

6001; New Colonial - 6 - [*6] Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Petitioner has neither alleged that section 7491(a) applies nor established his compliance with its requirements. Therefore, the burden ofproofremains with petitioner. II. Medical Expense Respondent contends that petitioner improperly claimed a deduction for and fai

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further . substantiate that

6001; see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001).1 Whether an expenditure is ordinary or necessary is a question offact. Commissioner v. Heininger, 320 U.S. 467, 475 (1943). Generally, the performance ofservices as an employee constitutes a trade or business. O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988); sec. 1.162-17(a

Section 6001 specifies that taxpayers must keep such records as are sufficientto show whetherthey are liable for tax. Petitioner intentionally and, as discussed below, unjustifiably destroyed his business records in contradiction to that substantiation and recordkeeping requirement. The burden ofproofremains with petitioner. See also Sowards v. Com

Ifa taxpayer fails to maintain the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The bank deposits method is a permissible method of reconstructing income. Clayton v. Commissioner, 102 T.C. 63

1.6001-1(a), Income Tax Regs. When a taxpayer establishes that he or she paid or incurred a deductible expense but does not establish the amount ofthe expense, we may estimate the amount allowable in some circumstances (the - 30 - [*30] Cohan rule). See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), aff'g in part, rev'

1.6001- 1(a), (e), Income Tax Regs. Personal expenses are not deductible. Sec. 262. Neither the IRS nor the Court can reasonably be expected to comb through disorganized records and guess which relate to the deductions claimed on petitioner's tax return. See Patterson v. Commissioner, T.C. Memo. 1979-362, 39 T.C.M. (CCH) 82, 84 (197

o a claimed deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). A taxpayer is required to maintain records to substantiate claimed deductions and to establish her correct tax liability. Higbee v. Commissioner, 116 T.C. at 440; see also sec. 6001. The taxpayer must produce those records upon the request ofthe Secretary. Sec. 7602(a); see also sec. 1.6001- 1(e), Income Tax Regs. Substantiation is generally adequate ifit establishes the amount and purpose ofthe claimed deduction. Higb

Ifa taxpayer fails to maintain the required books and records, the Commissionermay determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner's reconstruction ofincome "need only be 20In addition, respondentintroduced evidence that petit

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). The Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 - 13 - [*13] (19

6001; Hradesky v. Commissioner, 65 T.C. at 90. The Court need not accept a taxpayer's self-serving testimony when the taxpayer fails to present corroborative evidence. Beam v. Commissioner, T.C. Memo. 1990-304 (citing Tokarski v. Commissioner, 87 T.C. 74, 77 (1986)), aff'd without published opinion, 956 F.2d 1166 (9th Cir. 1992). The burden ma

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuantto a statutoryprovision and must further - 11 - substantiate t

Petitioner's argumentthat she did not keep records because she did not receive notice is specious, and her failure to maintain books and records is evidence offraudulent intent. 3. Failure To Cooperate With Tax Authorities Petitioner failed to comply with respondent's multiple requests to provide books and records or otherwise cooperate

1.6001-1(a), Income Tax Regs. II. Dependency Exemption Deductions A. General The Internal Revenue Code allows as a deduction an exemption for each dependent ofa taxpayer in computing taxable income. See sec. 151(c). Section 152(a) defines a dependent as a qualifying child or qualifying relative ofthe taxpayer. In addition to other r

Commissioner, 96 T.C. 858, 867 (1991), aff'd, 959 F.2d 16 (2d Cir..1992). Ifa taxpayer fails to maintain these records the Commissioner may determine income under the bank deposits method. DiLeo v. Commissioner, 96 T.C. at 867. A bank deposit is prima facie evidence of income. Id. at 868. The Commissioner is not required to foll

1.6001-1(a), Income Tax Regs. Section 1.6001-1(e), Income Tax Regs., further provides that the "books or records required by this section * * * shall be retained so long as the contents thereofmay become material in the administration ofany internal revenue law." Petitioner's proffered substantiation consisted ofa handwritten summar

Commissioner, 112 T.C. 183, 186 (1999). It is a general rule, established in Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), that ifthe trial record provides sufficient evidence that the taxpayerhas incurred a deductible expense, but the taxpayer is unable to fully substantiate the precise amount ofthe deduction, the

1.6001-1(a), Income Tax Regs. Ifa taxpayer's records are lost or destroyed through circumstances beyond his or her control, however, the taxpayermay substantiate gross income or deductions through reasonable reconstruction. See Malinowski v. Commissioner, 71 T.C. 1120, 1125 (1979). The burden is on the taxpayerto show that the docum

Ifa taxpayer fails to maintain the required books and records, the Commissionermay determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner's reconstruction ofincome "need only be 20In addition, respondentintroduced evidence that petit

6001; Petzoldt v. Commissioner, 92 T.C. 661, 686 (1989); see also Hradesky v. Commissioner, 65 T.C. 87 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976). 7As noted supra, petitioner failed to file a posttrial brief. Accordingly, it is within our discretion to dismiss this case entirely. See Rules 123, 151(a); Strinster v. Commissioner, 84 T.C. 693,

Ifa taxpayer fails to maintain the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner's reconstruction ofincome "need only be reasonable in light ofall surrounding facts and circum

6001; Hradesky v. Commissiorier, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Merieguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate th

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's reconstruction ofincome "need only be reaso

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer 3As discussed in detail below, petitioners did not comply with the Code's substantiation requirements and have not maintained all required records. Therefore, the burden of

We find that Mr. Abdallah's records were poor, inadequate, and incomplete. On brief, petitioners concede that Mr. Abdallah "did not keep contemporaneous records ofthe fees he collected when he cashed checks", that his recordkeeping was deficient, and that "[t]here is no doubt that Mr. Abdallah was a poor record keeper". Further, Mr. Abda

Commissioner, 112 T.C. 183, 186 (1999). Ifa taxpayerestablishes that he or she incurred a deductible expense but does not establish the exact amount, the Court should estimate the amount ofthe allowable deduction, bearing heavily against the taxpayerwhose inexactitude is ofhis or her own making (Cohan rule). See Cohan v. Commissi

Section 7491(a)(1) provides that, ubject to certain limitations, where a taxpayer introduces credible evidence with respect to a factual issue relevant to ascertaining the taxpayer's tax liability, the burden ofproofshifts to the Commissioner with respect to that issue.

As a general rule, ifthe trial record provides sufficient evidence that the'taxpayerhas incurred a deductible expense but the taxpayer is unable to adequately substantiate the precise amount ofthe deduction to which he is otherwise entitled, the Court may estimate the amount ofthe deductible expense and allow the deduction to that extent

6001; Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Taxpayers claiming an NOL deduction bear the burden of substantiating the deduction by establishing both the existence ofthe NOL and the amount ofany NOL that may be carried over to the subject years. Rule 142(a)(1); United States v. Olympic Radio & Television, Inc., 349 U.S.

Section 162(a) provides a deduction for certain business expenses. In order to qualify for the deduction under section 162(a), "an item must (1) be 'paid or incurred during the taxable year', (2) be for 'carrying on any trade or business', (3) be an 'expense', (4) be a 'necessary' expense, and (5) be an 'ordinary' expense." Commissioner

Thus, respondenthad the authority to reconstruct income in accordance with the bank deposits method. See sec. 446(b); Clayton v. Commissioner, 102 T.C. 632, 645 (1994) ("The use ofthe bank deposit method for computing unreported income has long been sanctioned by the courts."); Petzoldt v. Commissioner, 92 T.C. 661, 686-687 (1989). Respo

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. at 693; sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's reconstruction ofincome "need only be reasonable in

Section 162(a) provides a dedue ion for certain business-related expenses. In order to qualify for the deductionunder section 162(a), "an item must (1) be 'paid or incurred duringthe taxable year,' (2) be for 'carrying on any trade or business,' (3) be an 'expense,' (4) be a 'necessary' expense, and (5) be an 'ordinary' expense." Commiss

6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; sec. 1.6001-1(a), Income Tax Regs. A. Loss From SEP In general, a shareholder ofan S corporation may deduct his pro rata share ofthe corporation's separately computed and nonseparately computed losses and deductions. Sec. 1366(a). But the shareholder may deduct his pro rata shar

Commissioner, 112 T.C. 183, 186 (1999). It is a general rule, established in Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), that ifthe trial record provides sufficient evidence that the taxpayerhas incurred a deductible expense, but the taxpayer is unable to fully substantiate the precise amount ofthe deduction, the

6001; Hratesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Martell v. Commissioner, at *24; sec..1.6001-1(a), (e), Income "ax Regs. Taxpayers must maintain records relating to their income and expenses and must prove their entitlement to all claimed deductions, credits, and expenses in controversy. S

Section 165(a) provides that a taxpayermay deduct any loss sustained during the taxable year and not compensated for by insurance or otherwise.

1.6001-1(a), (e), Income Tax Regs. In other words, the taxpayer bears the burden ofproving entitlementto the deductions claimed, and this includes the burden ofsubstantiation. Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). II. Home Mortgage Interest Deduction As a genera

Commissioner, 116 T.C. at 440. Certain expenses specified in section 274 are subject to strict substantiation rules. To meet these strict substantiation rules, a taxpayer must substantiate by adequate records or by sufficient evidence corroborating the taxpayer's own statement (1) the amount, (2) the time and place ofthe travel

6001; Hradesky v. Commissioner, 65 T.C. 3In the stipulation offacts, the parties stipulated that the $6,350 charitable contribution deduction allowed in the notice consists ofcontributions of$5,450, $400, and $500 toWMCF, CW, and EAM, respectively. 4Petitioners do not claim that the provisions ofsec. 7491(a) are applicable, and we proceed as t

6001; see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001) ("[T]he taxpayer bears the burden of substantiating the amount and purpose ofthe claimed deduction."). We need not accept the unverified and undocumented testimony ofthe taxpayer as substantiation. See, e.g., Good v. Commissioner, T.C. Memo. 2008-245, 2008 WL 4756483, at *6. Perso

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return.must demonstrate thát the deduction is allowable pursuant to a statutory provision and must further substantiate that th

Commissioner, 112 T.C. 183, 186 (1999). For - 23 - [*23] some types ofexpenses, lack ofsubstantiation can be overcome. Under the Cohan doctrine, ifa taxpayer establishes that a deductible expense has been paid but cannot establish the precise amount ofthe deductible expense, the Court may estimate the amount. See Cohan v. Commis

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the - 8 - deduction is allowable pursuant to a statutory provision and must further substantiate

1.6001-1(a), Income Tax Regs. A cash contribution ofless than $250 may be substantiated with a canceled check, a receipt, or other reliable evidence showing the name ofthe donee, the date ofthe contribution, and the amount ofthe contribution. Sec. 1.170A-13(a)(1), Income Tax Regs. Contributions ofcash or property of$250 or more requ

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). In general, a trade or business expense, ifproperly substantiated, is allowed as a deduction. See sec. 162. Petitioner has presented to the Court nö substantiating documents for any o

1.6001-1(a), Income Tax Regs. i Though Ehsan's name was on the petition, she neither signed the stipulation offacts nor appeared at trial. We therefore granted the Commissioner's oral motion to dismiss her from the case for lack ofprosecution, with the understanding that the decision we enter as to her will be the same amount we ult

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976); sec. - 9 - [*9] 1.6001-1(a), Income Tax Regs. When a taxpayer adequately establishes that he or she paid or incurred a deductible expense but does not establish the precise amount, we may in some circumstances estimate the allowable deduction, beari

Respondent was therefore authorized to reconstruct petitioner's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. The bank deposits method is a permissible method ofreconstructing income. See Clayton v. Commissioner, 102 T.C. 632, 64

. Deputy v. du Pont, 308 U.S. 488, 495 (1940); Welch v. Helvering, 290 U.S. at 113. The taxpayer bears the burden ofproving that claimed expenses are ordinary and necessary, Rule 142(a), and also bears the burden ofsubstantiating claimed deductions, sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). In certain circumstances, the Court may estimate the amount ofa deductible expense ifa taxpayer establishes that an expense is deductible and

1.6001-1(a), Income Tax Regs. Before turning to the issues that remain for decision, we shall evaluate the evidence that petitioner adduced at trial in support ofher position on each ofthose - 10 - [*10] issues. In support ofthose positions, petitionerrelies on her own testimony: the testimony ofMr. Zabasky, and certain documentary

the claimed deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). A taxpayer is required to maintain records to substantiate claimed deductions and to establish her correct tax liability. Higbee v. Commissioner, 116 T.C. at 440; see also sec. 6001. The taxpayermust produce such records upon the request ofthe Secretary." Sec. 7602(a); see also sec. 1.6001-1(e), Income Tax Regs. Substantiation is adequate ifit establishes the amount and purpose ofthe claimed deduction. Higbee v. Commis

Commissioner, 112 T.C. 183, 186 (1999); sec. 1.6001-1(a), Income Tax Regs. Under section 7491(a), the burden ofproofmay shift to the Commissioner if the taxpayer produces credible evidence with respect to any relevant factual issue and meets other requirements. Petitioners have not argued or established that section 7491(a) appli

8See Fed. R. Evid. 1006. 9Sec. 162(a). - 13 - [*13] specifically allowed in the Code.1° Again, deductions are a "matter of legislative grace"," and taxpayers must maintain sufficient records to establish their claimed deductions.° These records must be retained for as long as.the contents may become material and must be kept available f

6001; Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs.; see Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115 (1933); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); see also sec. 7491(a)(2)(A) and

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that th

6001; Hradesky v. Commissioner, 65 T.C. 87 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976). A taxpayer's self-serving declaration is generally not a sufficient substitute for records. Weiss v. Commissioner, T.C. Memo. 1999-17. Petitioner failed to present any documentation or other credible evidence showing that he paid home mortgage interest in 2

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Schedule C Business Expenses Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Generally, no deduction is allowed for personal, living, or

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the 6As disc

As a general rule, ifthe trial record provides sufficient evidence that the taxpayer has incurred a deductible expense, but the taxpayer is unable to fully substantiate the precise amount ofthe deduction, the Court may estimate the amount ofthe deductible expense and allow a deduction to that extent. Cohan v. Commissioner, 39 F.2d 540, 5

deductions he claims. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). A taxpayer must maintain records to substantiate claimed deductions and to establish the taxpayer's correct tax liability. Higbee v. Commissioner, 116 T.C. at 440; see also sec. 6001. The taxpayer must produce such records upon the Secretary's request. Sec. 7602(a); see also sec. 1.6001-1(e), Income Tax Regs. Adequate substantiation must establish the amount and purpose ofa claimed deduction. Higbee v. Commissioner, 116

1.6001-1(a), Income Tax Regs. The applicable legal principles summarized above imposed on petitioner the burden to establish, by providing records and other documentation and information to respondent's revenue agent (or to another representative ofrespondent), that the respective management fees that petitioner paid to Mr. Ayoub du

Ifa taxpayer fails to maintain the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The bank deposits method is a permissible method of reconstructing income. Clayton v. Commissioner, 102 T.C. 63

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. at 693; sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's reconstruction ofincome "need only be reasonable in

Commissioner, 122 T.C. 305, 320 (2004); sec. 1.274-5T(c)(5), Temporary Income Tax Regs., 50 Fed. Reg. 46022 (Nov. 6, 1985). - 13 - [*13] records, they have failed to provide corroborating records or credible testimony relating to the claimed expenses. II. Omitted Income A. Bank Deposits Analysis Where a taxpayer fails to keep s

Commissioner, 112 T.C. 183, 186 (1999); sec. 1.6001-1(a), Income Tax Regs. Section 165(a) provides that a taxpayermay deduct any loss sustained during the taxable year and not compensated for by insurance or otherwise. For individuals, a loss is deductible only when: (1) losses are incurred in a trade or business; (2) losses are

Commissioner, 122 T.C. 305, 320 (2004); sec. 1.274-5T(c)(5), Temporary Income Tax Regs., 50 Fed. Reg. 46022 (Nov. 6, 1985). - 13 - [*13] records, they have failed to provide corroborating records or credible testimony relating to the claimed expenses. II. Omitted Income A. Bank Deposits Analysis Where a taxpayer fails to keep s

6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Under the familiar Cohan rule, where a taxpayer is able to demonstrate that she has paid or incurred a deductible expense but cannot substantiate the precise amount, the Court may estimate the amount of the expense if the taxpayer produ

TPM Section 162(a) provides that "There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".

As an exception to this general rule, section 183(b)(2) provides that ifan individual engages in an activity not for profit, deductions relating to that activity are allowable to the extent gross income derived from the activity exceeds deductions that would be allowable under chapter 1 ofthe Code withoutregard to whether the activity constitutes a for-profit activit

Commissioner, 112 T.C. 183, 186 (1999). No deduction is allowed for personal, living, and family expenses. Sec. 262(a). Petitioner deducted $1,390 in charitable contributions on the Schedule C for Anthony M. Bentley, Esq.--$1,000 was donated to Fordham Law School, with smaller donations made to a Jewish community organization, th

6001; Hradeskyv. Commissioner, 65 T.C. at 90. The Court need not accept a taxpayer's self-serving testimony when the taxpayer fails to present corroborative evidence. Beam v. Commissioner, T.C. Memo. 1990-304 (citing Tokarski v. Commissioner, 87 T.C. 74, 77 (1986)), aff'd without published opinion, 956 F.2d 1166 (9th Cir. 1992). The burden may

6001; Hradeskyv. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). - 6 - I. Petitioner's Schedule C Expenses Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. As a general rule, ifthe trial record provides

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitionerhas failed to allege a specific deduction to which he is entitled, nor has he advanced a legal theory under which reliefmay be granted. He has not provided any examples of deductions that respondent inappropriately disallowed. Witho

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory 4According to the notice, petitioners are not entitled to the recovery rebate credit for 2008 because o

Section 7491(a)(1) provides that if, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's proper tax liability, the Commissioner shall have the burden ofproofwith respect to that issue.

6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Section 172 allows a taxpayerto deduct an NOL for a taxable year in an amount equal to the sum ofthe NOL carryovers plus NOL carrybacks to that year. Sec. 172(a). Unless an election is made, an NOL for any taxable year must first be car

Respondent attributes substantial portions of the disagreed deposits to amounts that petitioner earned from working for other dentists. Wljile petitioner concedes that he worked for other dentists during the "It is notable that petitioner received the 1993 financial statements on March 18, 1994, showing net income of$117,359, before he f

6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. .Section 162(a) allows a taxpayer to deduct ordinary and necessary expenses paid or incurred during the taxable year in 3On brief, respondent concedes that petitioner has substantiated legal and professional expenses of$330. Under the h

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); P_et_glÅt_L . . T C 661 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. Co_ngn_msigneer, 92 . (cid:16)042 , "need only be reasonable in light of The

6001; ·Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), (e), Income Tax Regs. - 10 - Pursuant to section 7491(a) (1), the burden of proof as to factual matters may shift from the taxpayer to the.Commissioner under certain circumstances. The record does not allow us to conclude t

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. The deduction in dispute here is allowable, ifat all, under section 162(a), which allows deductions for ordinary and necessary business expenses. A business expense is ordinary for purposes ofsection 162 ifit is normal or customary within a particula

1.6001-1(a), Income Tax Regs. Taxpayers are allowed a deduction for ordinary and necessary expenses paid or incurred in carrying on a trade or business. Sec. 162(a). Whether an expenditure is ordinary and necessary is generally a question offact. · Commissioner v. Heininger, 320 U.S. 467, 475 (1943). Generally, for an expenditure to

6001; Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).8 8Additionally, a taxpayer claiming an NOL deduction for a taxable year must file with the tax return for that year a concise statement setting forth the amount ofthe NOL deduction claimed and all material and pertinent facts, including a detailed schedule showing the computat

6001; Rule 142(a)(1); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 94 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); sec. 1.6001-1(a), Income Tax Regs. However, under section 7491(a), ifthe taxpayerproduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's liability for tax and mee

agent did not testify. - 11 - Disallowed Expenses . . Section 162(a) allows a deduction for ordinary and necessary business expenses paid or incurred in carrying on a trade or business. However, a taxpayer is required to maintain adequate records, sec. 6001; sec. 1.6001-1(a), Income Tax Regs., and the Commissioner's determination in a notice ofdeficiency is presumed correct. Further, taxpayers generally bear the burden ofproofto substantiate claimed expenses. Rule 142(a), INDOPCO, Inc. v. Commi

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. I. Gambling Loss Deductions Petitioner claimed itemized deductions for gambling losses of$8,500, $15,455, and $5,522 for 2007, 2008, and 2009, respectively. These deductions are allowable, ifat all, under sectidn 165(d). Taxpayers who are not in the

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). . I. Petitioners"2005 Deductions Respondent disallowed a portion ofpetitioners' claimed charitable contributions and all oftheir claimed miscellaneous deductions for 2005. All of petitioners' claimed miscellaneous deductions were for unreimbu

- 17 - [*17] Disallowed Deductions Section 6001 reqùires that a taxpayerkeep' such records as ai·e necessary to establishhis or her deductions.

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) authorizes a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. .An expense is ordinary for purposes ofthis seátion ifit is normal or customarywithin a particular trade, business, or indus

Section 163(h)(1); however, provides that, in the case ofa taxpayerother than'a corporation, no deduction is allowed for personal interest.

Commissioner, 112 T.C. 183, 186 (1999). Section 262(a) precludes any deduction "for personal, living, or family expenses". Ifa factual basis exists to do so, the Court may in some circumstances estimate an allowable expense, bearing heavily against the taxpayer who failed to maintain adequate records. Cohan v. Commissioner, 39 F.

ssary expenses paid or incurred during the taxable year in carrying on any trade or business". When called upon by the Commissioner, a taxpayermust - 5 - [*5] substantiate his expenses. See, e.g., Good v. Commissioner, T.C. Memo. 2008-245; see also sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Moreover, certain deductions, including those relating to travel, meals, and entertainment, are subject to strict substantiation requirements. See sec. 274(d). Petitioner has not adequately substantiated a

Ifa taxpayer fails to maintain and produce the required books and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 66.1, 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's reconstruction ofincome "need only be reas

Revenue Code, as amended. - 6 - Commissioner, 503 U.S. 79, 84 (1992). A taxpayer is required to maintain records to substantiate claimed deductions and to establish his or her correct tax liability. Higbee v. Commissioner, 116 T.C. at 440; see also sec. 6001. The taxpayermust produce those records upon the request ofthe Secretary. Sec. 7602(a); see also sec. 1.6001-1(e), Income Tax Regs. Substantiation is adequate ifit establishes the amount and purpose ofthe claimed deduction. Hiebee v. Commiss

1.6001-1(a), Income Tax Regs. Taxpayers are allowed a deductio for ordinary and necessary expenses paid or incurred in carrying on a trade or busi ess. Sec. 162(a). Whether an expenditure is ordinary and necessary is generally a question offact. Commissionerv. Heininger, 320 U.S. 4 7, 475 (1943). Generally, for an expenditure to be

Ifthe taxpayer fails to do this, then the Commissioner is entitled to . reconstruct the taxpayer's income through the use ofany reásonable method. See Holland v. United States, 348 U.S. 121 (1954); Giddio v. Commissioner, 54 T.C. 1530, 1532-1534 (1970). Reliance on BLS statistics in reconstructing a taxpaye'r's income has been held to be

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 .2 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. In these cases the "statutory provisions" are section 162, which, in general, 4Under the circumstances, the provisions ofsec. 7491(a) are clearly not applicable. - 7 - allows a deduction for ordinary and n

6001; Hradesky v. 3Petitioners do not claim that the provisions ofsec. 7491(a) are applicable, and we proceed as though they are not. - 9 - Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001- 1(a), Income Tax Regs. Section 162 generally allow

1.6001-1(a), Income Tax Regs. Ifa taxpayerestablishes that he or she paid or incurred a deductible business expense but does not establish the amount, this Court may approximate the amount ofthe allowable deduction, bearing heavily against the taxpayerwhose inexactitude is ofhis or her own making. Cohan v. Commissioner, 39 F.2d 540,

Commissioner, 112 T.C. 183, 186 (1999); sec. 1.6 01-1(a), Income Tax Regs. Section 7491(a) provides an exception that shifts the burden ofproofto the Commissioner. The burden ofproofregarding a claimed d duction shifts to the Commissioner ifthe taxpayer introduces credible evidence egarding relevant 6See supr_a note 2. - 6 - fac

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Higbee v. Commissioner, 116 T.C. at 440. When a taxpayer establishes that she paid or incurred a deductible expense but does not establish the amount ofthe expense, we may estimate the amount ofthe deductible expense (the Cohan rule). Cohan v. Commissioner, 39 F.2d 540, 542- 544 (2d

1.6001-1(a), (e), Income Tax Regs. When a taxpayer fails to keep adequate books and records, the Commissioner is authorized to determine the existence and amount ofthe taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner may use indirect me

We agree with respondentthat petitioners have failed to prove thätthe payments under the services agi·eements were necessary or reasonable. In addition, SGR's and WFR's form invoices fall short ofsatisfying the substantiation requirements ofthe Code. We sustain respondent's disallowance of the deductions SGR and WFR claimed for facilitie

1.6001-1(e),iInòome Tax Regs.; g, Widemon v. Commissioner, T:C±Memo. 2004-162, 2004 WL 1559185, at *5 To substantiate a capital.loss carryover, the taxpayermust show: (1) thatia loss was incurred, (2) when he incurred the loss, (3) that he is entitled to deduct the loss; (4) whether the loss is capital or noncapital, or business or

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. Ifa taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount, we may 2Respondent now agrees that petitioner is entitled to a deduction for professional association

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-1(a), Income Tax Regs. I. Gambling Loss Deductions Petitioner conceded on the basis ofForms W-2G, Certain Gambling Winnings, that he received $86,600 and $214,140 ofgambling winnings for the 2003 and 2006 tax years, respectively. The issue is whetherpetitioner is entitled

Commissioner, 112 T.C. 183, 186 (1999). Section 262(a) precludes any deduction "for personal, living, or family expenses". Ifa factual basis exists to do so, the Court may in some circumstances estimate an allowable expense, bearing heavily against the taxpayer who failed to maintain adequate records. Cohan v. Commissioner, 39 F.

Commissioner, 112 T.C. 183, 186 (1999); sec. 1.6001-1(a), Income Tax Regs. - 12 - [*12] Section 7491(a) provides an exception that can shift the burden ofproofto the Commissioner. The burden to disprove a claimed deduction shifts to the Commissioner ifthe taxpayer introduces credible evidence regarding relevant factual issues an

6001; Hradesky v: Commissioner, 65 T.C. 87, 89 (1975), aff'd per curianÅ, 540 F.2d 821 (5th Cir. 1976). 6(...cOntinued) the return in the notice ofd ficiency. Petitioners claimed a deduction for rental expenses of$141,391 for 2 07. The difference is $226 ofdepreciation expense reported for property "B" o Schedule E. - 7 - Petitioners' Schedul

1.6001-1(a), Income Tax Regs. At trial, Mr. Cheng was the only witness. We found Mr. Cheng's testimony to be in certain material respects vague, self-serving, and/or uncorroborated. We shall not rely on the testimony ofMr. Cheng to establish his position with respect to the issue presented. See, e.g., Tokarski v. Commissioner, 87 T.

6001; Rule 142(a)(1); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). While section 162(a) generally lets a corporate taxpayer deduct the ordinary arid necessary expenses ofits trade or business, expenditures made in an attemp: to obtain abusive tax shelter benefits are not ordinary and necessary business e spenses or otherwise deductib

Commissioner, 112 T.C. 183, 186 (1999). Section 167(a)(1) provides a depreciation deduction with respect to property used in a trade or business. Section 262 specifically disallows deductions for personal, living, and family expenses. Respondent disallowed the following deductions related to the Valdemossa home, the yacht, and th

Respondent disallowed the NOL and capital loss deductions for, among other reasons, lack ofsubstantiation. The only records in evidence are petitioner's amended 1995 Form 1040 and 1996-2002 Forms 1040, on which they claimed those deductions, which as discussed supra, absent supporting evidence, provide insufficient substantiation. All bu

Section 162(a) provides a deduction for certain business-related exper ses. In order to qualify as a deduction under section 162(a), "an item must (1) be 'paid or incurred during the taxable year,' (2) be for 'carrying on any trade or business,' (3) be an 'expense,' (4) be a 'necessary' expense, and 2Respondent disallowed a cellular tele

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Deductions are a matter oflegislative grace, and taxpayers generally bear the burden ofproving their entitlement to claimed deductions. Rule 142(a); New Colonial Ice Co., Inc. v. Helvering, 292 U.S. 435, 440 (1934). -'11 - Respondent arý,ues that petitioners have not established that the

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Taxpayers are allowed deductions for most business and investment expenses under sections 162 and 212; however, section 469 generally disallows any passive activity loss for the tax year. Goolsby v. Commissioner, T.C. Memo. 2010-64. A passive activity loss is defined as the excess of

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). . I. Petitioners"2005 Deductions Respondent disallowed a portion ofpetitioners' claimed charitable contributions and all oftheir claimed miscellaneous deductions for 2005. All of petitioners' claimed miscellaneous deductions were for unreimbu

35, 440 (1934); Welch v. Helverina, 290 U.S. at 115. To meet the burden, taxpayers must supply substantiation ofany deductions and expenses claimed. Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); see sec. 6001; sec. 1.6001-1(a), Income Tax Regs. (requiring taxpayers to maintain sufficient records to permit verification ofdeductible expenses). I. "Lost Rent" Deduction Section 162(a) allows as a deduction all the ordinary and necessary expenses pai

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. - 11 - v. Commissioner, 503 U.S. 79, 84 (1992). As in this case, whèn taxpayers fail to maintain adequate books and records, the Commissioner.is authorized to use whatever method he deems appropriate to determine the existence and amount of the taxpayers' income so long as, in the C

1.6001-1(a), Income Tax Regs. - 12 - [*12] At trial, petitioners called Mr. Gigliobianco as a witness. We found Mr. Gigliobianco's testimonyto be in certain material respects not credible, vague, self-serving, uncorroborated, and/or contradicted by certain other evidence in the record. We shall not rely on the testimony ofMr. Gigli

No deductions under section 162 or 212 shall be allowed for, among other things, travel expenses, entertainment expenses, gifts, and expenses with respect to "listed property" as defined in section 280F(d)(4)"unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement": (1) the amount ofthe expense or other item; (2) the time and place of the travel, entertainment, or use, or date and description ofthe gift; (3) the busine

1.6001-1(a), Income Tax Regs. Petitioner contends that he is entitled to: (1) a dependency exemption deduction for each ofhis two minor children; (2) head ofhousehold filing status; (3) the child tax credit; and (4) an earned income credit. I. Dependency Exemption Deductions Petitioner initially asserts that respondent is estopped f

1.6001-1(a), Income Tax Regs. It is petitioner's position that he is entitled to deduct under section 162(a) all ofthe "Other expenses" that he claimed in his 2007 Schedule C, except the 6The record does not establish the nature ofthe remaining $153 ofthe "Dues and Subscriptions" of$1,573 that petitioner claimed in his 2007 Schedule

1.6001-1(a), (e), Income Tax Regs. Messrs. Kern and Redinger wrongfully relied - 28 - on estimates to prepare many oftheir clients' tax returns. Taxpayers are generally prohibited from estimating vehicle expenses and expenses covered by section 274(d). Sanford v. Commissioner, 50 T.C. 823, 828 (1968), aff'd, 412 F.2d 201 (2d Cir.

1.6001-1(a), Income Tax Regs. Taxpayers are allowed a deductio for ordinary and necessary expenses paid or incurred in carrying on a trade or busi ess. Sec. 162(a). Whether an expenditure is ordinary and necessary is generally a question offact. Commissionerv. Heininger, 320 U.S. 4 7, 475 (1943). Generally, for an expenditure to be

6001 Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tãx return must demònsträte that the deduction is allowable pursuant to some statutoryprovision and must further substantiate that t

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 .2 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. In these cases the "statutory provisions" are section 162, which, in general, 4Under the circumstances, the provisions ofsec. 7491(a) are clearly not applicable. - 7 - allows a deduction for ordinary and n

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. 3Petitioner does not claim that the provisions ofsec. 7491(a) are applicable, and we proceed as though they are not. - 7 - The parties have reached ag

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). Petitioners have.producedno records substantiating the workthat Lawrence performed at the law firm In the event a taxpayer establishes thát he or she incurred a deductible e pense but is unable to substantiate the precise amount, the Court

6001; INDOPCOiInc. v. Commissioner, 503 U.S. 79, 84 (1992). Section 162(a) permits- "as a deduction all the ordinary and necessary expenses paid or incurred during tlie taxable year in carrying on any trade or business". To be deductible, ordinary and - 10 - necessary expenses must be "directly connected with or pertaining to the taxpayer's t

Commissioner, 116 T.C. at 440. Normally, the Court may estimate the amount ofa deductible expense ifa taxpayerestablishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). This is o

6001; Rule 142(a). The record in this case, consisting ofdocuments agreed to by the parties, shows that petitioner claimed loss deductions on his 2007 and 2008 returns. See sec. 165. We reiterate that petitioner was thoroughly advised about the possible need to give testimony, call witnesses, and present documents when this case was called for

1.6001-1(a), Income Tax Regs. Under section 274(d) and the regulations thereunder heightened taxpayer substantiation and documentation requirements apply to expenses for business travel away from home, including meal and vehicle mileage expenses. Sec. 1.274- 5T(a)(1), Temporary Incori1e Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

These records should be sufficient to establish the amount ofthe gross income or other matters shown on the tax return. Sec. 1.6001-1(a), Income Tax Regs. The taxpayer shall retain these records as long as they may become material in the administration ofthe Internal Revenue Code. Sec. 1.6001- 1(e), Income Tax Regs. II. Adjusted Basis Th

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. - 7 - v. Commissioner, 503 U.S. 79, 84 (1992); see also sec. 1.6001-1(a), Income Tax Regs. As in this case, when the taxpayer fails to maintain adequate books and records, the Commissioner is authorized to use whatever method he deems appropriate to determine the existence and amoun

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974); sec. 1.6001-:1(a), Income Tax Regs. The deductions in dispute here are allowable, ifat all, under section 162(a), which allows deductions for ordinary and necessary business expenses. A business expense is ordinary for purposes ofsection 162 ifit is normal or customary within a partic

Commissioner, 116 T.C. 438, ·440 (2001); sec. 1.6001-1(a), (e), Income , Tax Regs . . Petitioner testified that he incurred various expenses in relation to his building inspection business, but he did not produce any corroborating evidence of his claimed expenses before trial or during trial.. He requested 3 days after trial to

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d . 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuantto some statutoryprovision and must further substantiate that

Commissioner, 62 T.C..834, 836-837 (1974). Under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), if a taxpayer claims a deduction but cannot fully substantiate it, the Court, subject to certain exceptions, may approximate the allowable amount, bearing heavily against the taxpayer whose inexactitude in substantiatin

Section 162(a) provides a deductiqn for certain business- related expenses. In order to qualify for the deduction under section 162(a), "an item must (1) be 'paid or incurred during the taxable year,' (2) be for 'carrying on any trade or business,' (3) be an 'expense,' (4) be a 'necessary' expense, and (5) be an 'ordinary' expense." Comm

r task, then, is to determine whether Brooks would've been able to deduct the accrued interest on the loan had he repaid it. Brooks has the burden of proof here, see Rule 142 (a), which means he must have records sufficient to verify his claims, see sec. 6001; sec. 1.6001-1(a), Income Tax Regs. That turns out to be quite important here, because Brooks argues that the interest that Dain forgave in his case would've been deductible under section 212. This section allows individuals to deduct all t

Ifa taxpayer establishes a deductible expense but is unable to substantiate the precise amount, the Court generally may approximate the deductible amount, but only ifthe taxpayerpresents sufficient evidence to establish a rational basis for making the estimate. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commis

Commissioner, 112 T.C. 183, 186 (1999). No deduction is allowed for personal, living,.and family expenses. (cid:16)042Se2c6. 2(a). Certain expenses described in section 274 are subject to strict substantiation rules. No deduction under section 162 shall be allowed for, among other things, travel expenses, entertainment, gifts, an

6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 .2 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. In these cases the "statutory provisions" are section 162, which, in general, 4Under the circumstances, the provisions ofsec. 7491(a) are clearly not applicable. - 7 - allows a deduction for ordinary and n

oss receipts from the act vity and in accordance with the remainder ofthis opinion. -22- II. Substantiation A taxpa er is required to maintain records sufficient to substantiate deductions claimed by the taxpayer on his or her return. See generally sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.4 As a general rule, if, in the absence of required recordp, a taxpayer provides sufficient evidence that the taxpayer has incurred a deductible expense, but the taxpayer is unable to adequately substa

1.6001-1(a), (e), Income . Tax Regs. The fact that a taxpayerclaims a deduction on the taxpayer's income tax return is not sufficient to substanhiate it. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979); Roberts v. Commissioner, 62 T.Cn834, 837 (1974). Rather, an income tax return is merely a statement ofthe taxpayer's claim; it i

Commissioner, 112 T.C. 183, 186 (1999). Section 167(a)(1) provides a depreciation deduction with respect to property used in a trade or business. Section 262 specifically disallows deductions for personal, living, and family expenses. Respondent disallowed the following deductions related to the Valdemossa home, the yacht, and th

1.6001-1(a), (e), Income Tax Regs. Messrs. Kern and Redinger wrongfully relied - 28 - on estimates to prepare many oftheir clients' tax returns. Taxpayers are generally prohibited from estimating vehicle expenses and expenses covered by section 274(d). Sanford v. Commissioner, 50 T.C. 823, 828 (1968), aff'd, 412 F.2d 201 (2d Cir.

We agree with respondentthat petitioners have failed to prove thätthe payments under the services agi·eements were necessary or reasonable. In addition, SGR's and WFR's form invoices fall short ofsatisfying the substantiation requirements ofthe Code. We sustain respondent's disallowance of the deductions SGR and WFR claimed for facilitie

6001; Rule 142(a)(1); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). While section 162(a) generally lets a corporate taxpayer deduct the ordinary and necessary expenses of its trade or business, expenditures made in an attempt to obtain abusive tax shelter benefits are not ordinary and necessary business expenses or otherwise deductibl

6001; Hradesky v Commissioner, supra at 90; sec. 1.6001-1(a), Income Tax Regs. If the taxpayer e'stablishes that he has incurred a deductible expense yet is zunable sto substantiate the' exact amount, the Court -may estimate ,a deductible amount, but may abear heavily against the taxpayer whose inexactitude is of his own 3 making. Cohan v. Com

1.6001-1(a), Income Tax Regs. To substantiate "the deductions, Oglesby offered his own testimony and Exhibits 3-P, 4-P, 5-P, and 6-P. Exhibits 5-P and 6-P, which are invoices that show the billing and payment for the repairs, have unexplained inconsistencies. For example, Exhibit 5-P is dated before -9- Exhibit 6-P, yet the invoice

For courts to allow business expenses or make estimates of allowable expenses under Cohan v. Commissioner, 39 F.2d 540, 543- 544 (2d Cir. 1930),2 there must be some basis for reasonable estimates to be made. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957) ("there [must] be sufficient evidence * * * that at least the amount a

Commissioner, 112 T.C. 183, 186 (1999); sec. 1.6001-1(a), Income Tax Regs. When a taxpayer establishes that he or she has incurred a deductible expense but is unable to substantiate the exact amount, we may estimate the deductible amount (the Cohan rule). Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Comm

6001; Hradesky vs.- Commissioner, 65 T.C. 87, 89.(1975); affd. per curiam 5403F.2d 821 (5th Cir. 1976). Petitioner's return was audited by a tax compliande'officer (TCO) in respondent's Stockton, California, office. During the TCO's "pre-contact analysis" of petitioners' return, she noted 3Petitioner husband signed the petition, the stipulatio

Commissioner, 112 T.C. 183, 186 (1999) . To determine whether a taxpayer is conducting a trade or business requires an examination of the facts involved in each I case. Hiqqins v. Commissioner, 312 U.S. 212, 217 (1941) . For a taxpayer to be engaged in a trade or business, the primary purpose for engaging in the activity must be

1.6001-1(a) ," Income Tax Regs 2 keãpondent bears the burden of production with respect-tot the addition -to tax under sëàtion 6651(ar) (1)'that respondent determined for petitioners' taxable year 2005-and the accuracy- relâteu þen'alty under- sectïon 6662(a) that respondent determined for each of their taxable years 2004, 2005; 200

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), (e), Income Tax Regs. The fact that a taxpayer lists a deduction on the taxpayer's return is not sufficient to substantiate the deduction. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979); Roberts v. Commissioner, 62 T.C. 8

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. v..Commissioner, 503 U.S. 79, 84 (1992). As in this case, when the taxpayers fail to maintain adequate books and records, the Commissioner is authorized to use whatever method he deems appropriate to determine the existence and amount of the taxpayers' income so long as, in the Commi

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). 3Because of an inconsistency in the notice of deficiency, the amount respondent allowed/disallowed as a charitable contribution deduction for 2006 is unclear. "Petitidner does not claim t

ddition, petitioners did not proffer any books or other records that establish any of their positions with respect to the determinations in the 2001 notice. On the record before us, we find that petitioners did not maintain the records re- quired by sec. 6001 and sec. 1.6001-1(a), Income Tax Regs. 1 - 32 - Respondent disagrees, although respondent concedes that Ms. Crouse is entitled to relief under section 6015(b) with respect to the respective portions totaling $989,748 of the deficiency for 2

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd.. per curiam 540 F.2d 821 (5th Cir. 1976). - 6 - II. Petitioners' Reported Downpayment Loss5 Section 165(a) allows a ·deduction for.any loss sustained during the taxable year and not compensated for by insurance or otherwise. For individuals, as relevant here, the deduction is limite

As petitioners offered no evidence to substantiate their unreimbursed business expenses, respondent's determination is sustained. On the issue of his accrual, petitioner testified that he is an accountant. As an accountant petitioner should be familiar with the concept of imputed or implicit expenses or costs (imputed expenses). Imputed

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). The fact that a taxpayer claims a'deduction on his income tax return- is not sufficient to substar.tiate it. Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979) ; Roberts v. Commissioner, 62 T.C. 834, 837 (1974) . Rather, an ir..come tax return

Commissioner, 112 T.C. 183, 186 (1999). In addition to satisfying the criteria for deductibility under section 162, certain. categories of expenses must also satisfy the strict substantiation requirements of section 274 (d) in order for a deduction to be allowed. The expenses to which section 274 (d) applies include, among other

1.6001-1(a), Income Tax Regs. A video camera is listed property subjeþt to the substantiation requirements of section 274(d.), see sec. 280F(d) (4) (A) (iii); sec. 1.280F-6T(b) (3), Temporary Income Tax Regs., 50 Fed. Reg. 46041 (Nov. 6, 1985), with certain exceptions.6 Petitioner's general claim tha the video camera was used for bu

Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992) . When sa taxpayer fails to keep adequate books and records, the Commissioner is authorized to determine the existence and amount of the taxpayer's income by any method that clearly reflects income.: Sec. 446(b); Mallette Bros. Constr. Co. v. nited States, 6

1.6001- 1(a), Income Tax Regs. Thompson argues that his 2003 tax return shows $170,494 of investment-interest expense which he could carry forward to future years.' He contends that the Commissioner's admission that he paid some investment-interest expense in 2004 and 2006 means that we should accept his own assertion about the spec

Commissioner, 112 T.C. 183, 186 (1999) : 'When taxpayers establish that they have Jincurred deductible expenses but are unable to áubstantiate the exact amounts, we can estimate the deductible amounts, but'onlý ifathe taxpayers present sufficient evidence to establish a rational basis for naking the estimates. See Cohan v. ECommi

435, 440 (1934).3 Section 162(a) provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business.

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974) . Under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930) , if a taxpayer claims a deductiòn but cannöt fully substantiate it, the Court, subject to certain exceptions, may approximate the ällowable amount, bearing heavily against the taxpayer whose inexactitude in substantiat

6001; Hradesky v. s Indeed, petitioner expressly conceded in the petition that unemployment compensation of $825 and interest income of $10 were "owed". 1 - 8 - Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). A deduction is allowed for any qualified residence interest. Sec. 163 (h) (2) (D). - Deductible int

Section 61 provides that gross income includes all income from whatever source derived, unless the taxpayer can establish a - 4 - specific legislative authorization to exclude income from taxation.

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. As a general rule, if the trial record provides sufficient evidence that the taxpayer has

Section 6001 further requires taxpayers to maintain books and records sufficient to substantiate the amounts of the deductions claimed. Sec. 1.6001-1(a), (e), Income Tax Regs. If a taxpayer is unable to fully substantiate the expenses incurred, but there is evidence that deductible expenses were incurred, the Court may under certain circumstances a

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Section 162(a) permits "as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business" . To be deductible, ordinary and necessary expenses must be "directly connected with or pertaining to the taxpayer's trade or

Where a taxpayer fails to maintain adequate books and records, the Commissioner is empowered to determine the existence and amount of the taxpayer's income by any method that clearly reflects .income. Sec. 446(b); Petzoldt v.-Commissioner, 92 T.C. 661, 686-687 (1989). The Commissioner's reconstruction of a taxpayer's income need only be

Commissioner, 112 T.C. 183, 186 (1999). If a factual basis exists to do so, the Court may in some circumstances approximate an allowable expense, bearing heavily against the taxpayer who failed to maintain adequate records. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); see sec. 1.274-5T(a), Temporary Income Tax Regs

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). - 9- - If a taxpayer establishes that he or she has incurred a deductible expense yet is unable to substantiate. the exact amount, the Court may estimate a deductible amount, bearing heavily against the taxpayer whose inexactituderis of his o

6001; Roberts v. Commissioner, 62 T.C. 834, 836-837 (1974). Section 162(a) authorizes a deduction for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business". A trade or business expense is ordinary for purposes of section 162 if it is normal or customary within a particular trade

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Section 162(a) authorizes a deduction for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business". A trade or business expense is ordinary for p

6001; New Colonial Ice Co. v: Helvering, 292 U.S. 435·,7 440 (1934) ; Rober,ts V: Commissioner, 62 T.C. 834, 836 (1974); sec. 1.6001-1(a), Income Tax Regs. 3Petitionèr stated in his petition that'he intended to rely on travel expenses, theft losses, itemized deductions, moving costs, and "losses due to acts of God/natural disasters" in proving

Section 162(a) provides that "There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".

Commissioner, 112 T.C. 183, 186 (1999). If a factual basis exists to do so, the Court may in some contexts approximate an allowable expense, bearing heavily against the taxpayer who failed to maintain adequate records. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); see sec. 1.274-5T(a), Temporary Income Tax Regs., 50

oned or described in the context", sec. 7701(a) (12) (A). - 11 - (1992). A taxpayer is required-to maintain records to substantiate clained deductions and to establish his or her correct tax liability. Higbee v. Commissioner, supra at 440; see also sec. 6001. The taxpayer must produce those records upon request of the Secretary. Sec. 7602(a); see also sec. 1.6001- 1(e), Income Tax 1egs.. Adequate substantiation must establish the amount and purpose of a deduction. Higbee v. Commissioner, supra A

1.6001-1(a), (e), Income Tax Regs. Personal expenses are not deductible. Sec. 262. A taxpayer may deduct unreimbursed employee expenses as an ordinary and necessary business expense under section 162. Lucas v. Commissioner, 79 T.C. 1, 6 (1982). The expenses must be directly or proximately related to the taxpayer's trade or - 5 - bu

Section 162(a) provides that "There shall be allowed as a deduction all the ordinary and necessaiy expenses paid or incurred during the taxable year in carrying on any trade or business".

6001; Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Automobile, travel, and meals and entertainment expenses are subject to heightened substantiation requirements. See secs. 280F(d) (4) (A) (i), 274 (d) (1) and (2). Petitioners failed to meet these heightened substantiation requirements. Further, we

Section 162 (a) provides that "There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business" .

Section 6001 and the regulations thereunder require taxpayers to keep permanent records sufficient to substantiate the amounts of income, deductions, and credits shown on'their tax returns. Sec. 1.6001-l(a) Income Tax Regs. Petitioner did not keep books and records with respect to hist gambling activities. Petitioner's slot machine jackpot,winnings

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). The fact that a taxpayer claims a deduction on his income tax return is not sufficient to substantiate it. Wilkinson v, Commissioner, 71 T.C. 633, 639 (1979); Roberts v. Commissioner, 62 T.C. 834, 837 (1974). Rather, an income tax return is me

6001; Hradesky v. Commissioner, 65 T.C. 87, 903(1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the

6001; Hradesky v. Commissioner, 65 T.C. 87 (1975), affd. 540 F.2d 821 (5th Cir. 1976). A taxpayer's self-serving declaration is generally not a sufficient substitute for records. Weiss v. Commissioner, T.C. Memo. 1999 17. -5- In the notice of deficiency issued for 2006 respondent determined a deficiency in petitioner's-Federal income- tax for

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Section 162(a) authorizes a deduction for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business". A trade or business expense is ordinary for p

1.6001-1(a), (e), Income Tax Regs. In general, no deduction is permitted for personal, family, or living expenses. Sec. 262. If a taxpayer establishes a deductible expense but is unable to substantiate the precise amount, the Court may approximate the deductible amount, but only if the taxpayer presents sufficient evidence to establ

6001; Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Under certain circumstances, if a taxpayer establishes entitlement to a deduction but not the amount, the Court may estimate the amount allowable. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We generally will not estimate a deductib

If a taxpayer fails to maintain the required books.and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92. T.C. 661, 693 (1989). The Commissioner's reconstruction of income "need only be reasonable in light of all surrounding facts and ci

6001; Higbee v. Commissioner, 116 T.C. 438, 440 - 8 - (2001). No deduction is allowed for personal, living, or family expenses unless expressly provided by law. Sec. 262(a). Deductions are a matter of legislative grace, and the taxpayer generally bears the burden of proving he or she is entitled to the deductions claimed.1 Rule 142(a); New Co

3) . - 27 - II. Bank Deposits Analysis A. Overview Gross income includes all income from whatever source derived, see sec. 61(a), and taxpayers are required to keep books and records sufficient to establish their Federal income tax liabilities, see sec. 6001; see also sec. 1.6001-1(a), (b), (e), Income Tax Regs. Where taxpayers fail to maintain adequate records to establish that liability, the Commissioner may reconstruct their income by any method that the Commissioner believes reflects income

1.6001-1(a), Income Tax Regs. 1. Medical Expense Deduction - Section 213(a) allows a deduction for expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, a spouse, or a dependent to the extent that such expenses exceed 7.5 percent of the taxpayer's adjusted gross incom

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001,1(a), Income Tax Regs. If a taxpayer's records are no longer available on account of circumstànces beyond. the taxpayer's control, such as a fire, flood, or other casualty, th

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Taxpayers must maintain records relating to ·their - income and expenses and must prove their'entitlement to all claimed deductions, credits, and expenses in- controversy. See sec. 6001; Rule 142(a); INDOPCO

Overview Section 6662(a) and (b) (1), (2), and (3) provides that a taxpayer may be liable for a 20-percent accuracy-related penalty on the portion of an underpayment of income tax attributable to, among other things, negligence or disregard of rules or "We conclude that respondent has conceded his determination that Rovakat may not deduct charitable contribution

If a taxpayer fails to maintain the required books.and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92. T.C. 661, 693 (1989). The Commissioner's reconstruction of income "need only be reasonable in light of all surrounding facts and ci

6001; Hradesky v. Commissioner, 65 T.C. 87 (1975), affd. 540 F.2d 821 (5th Cir. 1976). A taxpayer's self-serving declaration is generally not a sufficient substitute for records. Weiss v. Commissioner, T.C. Memo. 1999 17. -5- In the notice of deficiency issued for 2006 respondent determined a deficiency in petitioner's-Federal income- tax for

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. The performance of services as an employee is considered a trade or business for section

1.6001-1(a), Income Tax Regs. When property is used in a trade or business or held for the production of income, the taxpayer may be allowed a depreciation deduction. Secs. 161, 167.. Alternatively, the cost of property acquired by purchase for use in the active conduct of a trade or business may be expensed under section 179 during

Commissioner, 112 T.C. 183, 186 (1999). Respondent disallowed each, of petitioner's above-listed deductions as personal. We consider each.in the order listed. 1. Uniform Purchases and Uniform Cleaning Petitioner claimed a deduction for.uniforms purchased and uniform cleaning for his job as a correctional officer atiSan Quentin. E

Krasik, inter alia, the types of documents and records that Burley Trucking was required under section 6001 to maintain and to provide to respon- dent.

1.6001-1(a), Income Tax Regs. *In the petition, petitioner alleged total deductible busi- ness expenses of $6,339 'for his taxable year 2005, even though the difference between the $21,745 of Schedule C business income that petitioner received during that year and the $14,159 of "OTHER INCOME" that he reported on his 2005 return is

1.6001-1(a), Income Tax Regs. In the event that a taxpayer establishes that a deductible expense has been paid but -is unable to substantiate the precise amount, we gen'erally may estimate the amount of the deductible expense, bearing heavily against the taxpayer whose inexactitude in substantiating the amount of the expense is of h

Commissioner, 112 T.C. 183, 186 (1999) : 'When taxpayers establish that they have Jincurred deductible expenses but are unable to áubstantiate the exact amounts, we can estimate the deductible amounts, but'onlý ifathe taxpayers present sufficient evidence to establish a rational basis for naking the estimates. See Cohan v. ECommi

Other Inconie Section 6001 requirés a taxpayer to maintain sufficient a , records to allow for the determination of the taxpayer's cörrect tax liability.

1.6001-1(a), Income Tax Regs. Additionally, taxpayers bear the burden of substantiating the amount and purpose of the item claimed as a deduction. Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Petitioner argues that reporting his expenses on his 2006 and 2007 Schedules C and signing

Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). When a taxpayer fails to maintain these records, the Commissioner may determine income under the bank deposits method. Id. A bank deposit is prima facie evidence of income. Id. at 868; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986) . Once respondent has ma

1.6001- 1(a), Income Tax Regs. Thompson argues that his 2003 tax return shows $170,494 of investment-interest expense which he could carry forward to future years.' He contends that the Commissioner's admission that he paid some investment-interest expense in 2004 and 2006 means that we should accept his own assertion about the spec

6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Generally, no deduction is - 7 - allowed for personal, family, or living expenses. See -

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.; see Rule 142(a); INDOPCO, Inc. v. Commissioner, supra at 84) Welch v. Helvering, 290 U.S. 111, 115 (1933); Williams v. Commissioner, T.C. Memo. 1997-541 (The Commissioner's position was substantially justifi

(cid:16)042 A. Schedule C Expenses On her Schedule C for her tax return business petitioner reported $87, 994 of gross income and $73, 503 of total expenses . Respondent denied all of petitioner' s eclaimed $34, 880 of contract labor expenses, $1, 291 of petitioner s claimed $4, 000 utilities expense, and $1,837 of petitioner's claimed $

Section 162 generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Generally, no deduction is allowed for personal, living, or family expenses. See sec. 262. The taxpayer must show that.any claimed business expenses were incurred primarily for business

Commissioner, 112 T.C. 183, 186 (1999). In addition to satisfying the criteria for deductibility under section 162, certain categories of expenses must also 3(...continued) (7) meals and entertainment expenses; (8) utility expenses; and (9) other expenses. 4These disallowed deductions related to: (1) Car and truck expenses; (2) l

Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). When a taxpayer fails to maintain these records, the Commissioner may determine income under the bank deposits method. Id. A bank deposit is prima facie evidence of income. Id. at 868; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986) . Once respon^dent has m

If a taxpayer fails to maintain the required books.and records, the Commissioner may determine the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v. Commissioner, 92. T.C. 661, 693 (1989). The Commissioner's reconstruction of income "need only be reasonable in light of all surrounding facts and ci

1.6001-1(a), Income Tax Regs. A taxpayer must also substantiate the purpose and amount of the deductions claimed. Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Merely claiming a deduction on a Federal income tax return is not suffici

6001 ("Every person liable for any. .tax imposed by this title, or for the collection thereof, shall keep such records * * * and comply with such rules and regulations as the Secretary may from time to time prescribe .") ; sec . 1 .6001-1(a), Income Tax,Regs . ("Any person subject to tax * * shall keep such permanent books of account or record

6001; Menequzzo v. Commissioner, 43 - 6 - T.C. 824, 831-832 (1965). In the case of section 179 deductions, the taxpayer must maintain records reflecting how and from whom the section 179 property was acquired and when it was placed in service. Sec. 1.179-5 (a),- Income Tax Regs. In addition, the 1. section 179 election must specify the total

1.6001-1(a), (e), Income Tax Regs. a Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances. Petitioner has neither alleged that section 7491(a) applies nor established his compliance with the substantiation and recordkeeping requirements. See sec. 7491(a) (2) (A

6001; Rule 142(a); Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs. Section 162(a) permits taxpayers to deduct "all the ordinary and necessary business expenses paid or incurred during the taxable year"; and, in particular, section 162(a) (2) permits the deduc

1.6001-1(a) , (e) (1) , Income Tax Regs . • As a general rule, if the trial record provides sufficient evidence that the taxpayer has incurred a deductible expense but the taxpayer is "unable to adequately substantiate the precise amount of the deduction to which he or she is otherwise entitled, the Court may estimate the amount of

Thus, under section 162, the recordkeepin g requirement under section 6001 not only requires petitioner to keep records sufficient to establish that an expense was paid during the taxable year (such as his 2004 business expense ledge r coupled.

1.6001-1(a), Income Tax Regs. Petitioner testified credibly that BCPS required her to complete the course or BCPS would not have allowed her to begin teaching at its schools. This type of expenditure is an ordinary and necessary expenditure for an exchange teacher to incur. Petitioner also testified convincingly that she spent $726

Section 162 (a) provides that " There shall be allowed as I a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in car ying on any trade or business".

- 7 - section 6001 and section 1.6001-1, Income Tax Regs., in that she failed to maintain adequate books and records. III. Bank Deposits Method of Proof Respondent used the bank deposits method of proof to reconstruct petitioner's income for 2002, 2003 and 2004. "Deposits in a taxpayer's bank account are -orima facie evidence of income, and the taxpayer

6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, tsupra at 115. Section 162(a) allows a deduction for ordinary and necessary expenses that a taxpayer pays or incurs during the year in carrying on a trade or business. Lucas v. Commissioner, 79 T.C. 1, 6 (1982). Generally, the performance of services

These include section 6001 (requiring that "Every person liable for any tax imposed by this title * * * shall keep such records * * * as the Secretary may from time to time prescribe"), section 6011(a) (requiring that a return be filed by "any person made liable for any tax imposed by this title"), section 6501(a) (providing for assessment of "tax imposed by thi

1.6001-1(a), Income Tax Regs. Petitioner's disallowed deductions were all labeled job search costs, and she provided no further delineation for the expenses. A. 2006 Disallowed Unreimbursed Empl'oyee Expenses - $15,858 Petitioner's unreimbursed employee expenses deduction is a combination of expenses she paid in 2005 and 2006. On he

Section 6001 further requires taxpayers to maintain books and records sufficient to substantiate the amounts of the deductions claimed . Sec . 1.6001-1(a), (e), Income Tax Regs . If a taxpayer is unable to fully substantiate the expenses incurred, but there is evidence that deductible expenses were incurred, the Court may under certain circumstanc

Section 6001 further requires taxpayers to maintain books and records sufficient to substantiate the amounts of the deductions claimed. Sec. 1.6001-1(a), (e), Income Tax Regs. If a taxpayer is unable to fully substantiate the expenses incurred, but there is evidence that deductible expenses were incurred, the - 6 - Court may under certain circumst

Section 170(a) (1) allows a deduction for a charitable contribution as defined in section 170(c) if verified under applicable regulations.

1.6001-1(a) , Income Tax Regs. Petitioner's disallowed deductions-were all labeled job search costs. - i . - A. "Agency Fee (Recruiter)"---$6,133, "2005 State Refund not Received"--$1,442, and Airfare--$1,040 Included in the disallowed unreimbursed employee expenses are an "agency fee (recruiter)" of $6,133, a "State Refund not Rece

6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a)., Income Tax Regs. Petitioner, -- 6 - therefore, must produce evidence that she is entitled to the claimed deductions. Other Expensess-Outside Services Petitioner alleges that she paid to Juan A. Bravo (Mr. Bravo) $60,701 for-outside services during 2005. Petitioner's ta

1.6001-1(a), Income Tax Regs. Additionally, taxpayers bear the burden of substantiating the amount and purpose of each item they claim as a deduction. Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). For most business deductions' claimed, petitioner failed to maintain adequate or any re

Section 162(a) provides that "There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".

1.6001-1(a), Income Tax Regs. Additionally, taxpayers bear the burden of substantiating the amount and purpose of each item they claim as a deduction. Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). For most business deductions' claimed, petitioner failed to maintain adequate or any re

1.6001-1(a), (e), Income Tax Regs. Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances. Petitioners have neither alleged that section 7491(a) applies nor established their compliance with the substantiation and recordkeeping requirements. See sec. 7491(a) (2)

6001; see also, e.g., Menequzzo v. Commissioner, 43 T.C. 824, 831-32 (1965). If a taxpayer claims a business expense, but cannot fully substantiate it, we may approximate the allowable amount under certain circumstances. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930). For this rule to apply, however, there must be some basis for the

The deficiency notice explained that "the record keeping requirements under Internal Revenue Code Section 6001 have not been met, and you have not - 6 - complied with our request for substantiation of your Schedule C".

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); Menequzzo v. Commissioner, 43 T.C. 824, 831-832 (1965)., A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that th

6001 (the taxpayer "shall keep such records"); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Taxpayers must maintain records relating to their income and expenses and must prove their entitlement to all claimed deductions, credits, and expenses in controversy. See sec. 6001. Section 162(a) authorizes

Petitioner offered as proof of payment his testimony and a corroborating document that contained his contingency fee arrangement with his attorneys. On the basis of that evidence, we are persuaded that petitioner paid the attorney’s fees and, therefore, hold that petitioner has substantiated the payment of the fees. Finally, we consider

These include section 6001 (requiring that “Every person liable for any tax imposed by this title * * * shall keep such records * * * as the Secretary may from time to time prescribe”), section 6011(a) (requiring that a return be filed by “any person made liable for any tax imposed by this title”), section 6501(a) (providing for assessment of “tax imposed by thi

te with the contractor they hired to build that arena . The record shows that the Helmicks were sincere about upgrading their facilities . Respondent disputed the adequacy of the Helmicks' books and records for substantiation of their expenses under section 6001 . The Helmicks' practice of merely retaining their receipts and subsequently quantifying them was indeed informal . However, the '23 practice was sufficient'to keep`tPe`Helmicks apprised of their cash on hand and expenses , which in turn

gust. 15, 2005 The property's legal title,-however, passed, in part, to petitioner on August 15, 2005 . Petitioner is .entitled to mortgage interest deductions for payments she made from August 15, 2005, subject to the substantiation requirement of section 6001 . See Zards v . Commissioner, T .C. Memo . 1995-497 (only mortgage interest paid for the period after the taxpayer becomes the legal or equitable owner of the property is deductible by the taxpayer) . Petitioner provided copies of Forms 1

Section 6664(c)(1) provides that no section 6662 penalty may be imposed if the taxpayer shows that she had reasonable cause for and acted in good faith with respect to the underpayment of tax .

tions may-be indicative of negligence . Sec . 1 .6662-3(b)(1) . Further, petitioners' repeated failures and refusals to substantiate the claimed deductions despite knowing of the substantiation requirement demonstrates. an intentional disregard for .section 6001 . See secs . 1 .6662-3(b)(2), 1 .6001-1(a), Income Tax Regs . Petitioners have offered no evidence to contradict this .inference, and their arguments presented at trial and in their pretrial memorandum do not address the issue at hand .

ers . Accordingly, we cannot - 10 - estimate any amount of that deduction . On the basis of the record, we sustain respondent's disallowance of petitioner's claimed deduction for $15,600 in mental health treatment obtained through her church .3 See sec. 6001 ; sec. 1.6001-1(a), (e), Income Tax Regs . Petitioner claimed a deduction for $1,174 relating to her purchasing health insurance for her domestic partner in 2003 . Petitioner did not allege or prove that her partner was either her spouse or

6001 ; Hradesky V . Commissioner, supra ; -sec . 1 .6001-1(a), Income Tax Regs . None of the deductions here in dispute have been adequatel y substantiated by any written : records or documents admitted into evidence .. According to petitioner, his 2002 tax records were damaged, destroyed, or otherwise lost when the water pipes in his house bu

Section 6001requires taxpayers to maintain adequate records from which their correct tax liability may be determined . Petitioners' understatements of income tax are substantial . Mr . Greif reported a tax liability of zero, whereas his correct liability was $9,191 . Miss Bui also reported a tax liability of zero, whereas her correct liability was

OPINION In the'absence of adequate recordkeeping by a taxpayer a s mandated by section 6001, the Commissioner is authorized t o reconstruct the taxpayer's income by any reasonable method that clearly reflects income .

1 .6001-1(a), Income Tax Regs . Additionally, taxpayers bear the burden of substantiating the amount and purpose of each item they claim as a deduction . Hradesky v . Commissioner, . 65 T .C . 87, 89 (1975), affd . per curiam 540 F .2d 821 (5th Cir . 1976) . I . Medical and Dental Expenses Section 213(a) permits a deduction for a t

1.6001-1(a), (e), Income Tax Regs . The fact that a taxpayer reports a deduction on the, taxpayer's income tax return is not sufficient to substantiate the claimed deduction . Wilkinson v . Commissioner , 71 T .C. 633, 639 (1979) ; Roberts v. Commissioner , 62 T .C . 834, 837 (1974) . Rather, an income tax return is merely a state

gust. 15, 2005 The property's legal title,-however, passed, in part, to petitioner on August 15, 2005 . Petitioner is .entitled to mortgage interest deductions for payments she made from August 15, 2005, subject to the substantiation requirement of section 6001 . See Zards v . Commissioner, T .C. Memo . 1995-497 (only mortgage interest paid for the period after the taxpayer becomes the legal or equitable owner of the property is deductible by the taxpayer) . Petitioner provided copies of Forms 1

Under section 6001 and section 1 .6001-1(a) and (e), Income Tax Regs ., a taxpayer must keep such permanent books of account or records as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown on the tax return . If the books and records are not adequate to establish the. amount of deductions o

Section 6001requires taxpayers to maintain adequate records from which their correct tax liability may be determined . Petitioners' understatements of income tax are substantial . Mr . Greif reported a tax liability of zero, whereas his correct liability was $9,191 . Miss Bui also reported a tax liability of zero, whereas her correct liability was

et 1 . As previously stated, petitioner raised these suspended losses as a - 15 - new issue, and therefore bears the burden of proof as to the amounts claimed . Petitioner has not met his burden with respect to the standard for record keeping under section 6001 . Petitioner provided no proof as to the amounts of the suspended losses to which he now claims that he is entitled . The only exhibits pertinent to this issue are petitioner's tax returns for 2003 and 2004 . Contrary to petitioner's beli

6001; Higbee v. Commissioner, 116 T.C. 438 (2001); sec. 1.6001-1(a), Income Tax Regs. The records must substantiate both the amount and purpose of the claimed deductions. Higbee v. Commissioner, supra at 440. Petitioners have the burden of proving they are entitled to the claimed deduction. See Rule 142(a); Welch v. Helvering, 290 U.S. 111 (19

1.6001-1(a), Income Tax Regs. Taxpayers must substantiate both the amount and the purpose of the claimed deductions. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Taxpayers must also show that the IRS’s determinations as to deductions are in error. Rule 142(a); Welch v. Helvering, 290 U.S. at 115. - 27 - In their reply brief, p

OPINION Under section 6001, taxpayers are required to maintai n records and documentation relating to their business income and expenses .

6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Not only does the taxpayer bear the burden to substantiate any deduction claimed, but in proceedings such as this one, the taxpayer has the burden to present the substantiating records in an organized manner that clearly demonstrates the relat

1.6001-1(a), Proced. & Admin. Regs. Petitioner's failuré to comply with informal and formal discovery covering reasonable requests for information and documents, resulting in Court-enforced discovery, precludes a finding that it cooperated for purposes of section 7491(a)(2) (B). See AMC Trust v. Commissioner, T.C. Memo. 2005-180; Ri

r substantial authority . Id . at 446-447 . Respondent's burden of production is met by showing petitioner's negligence and disregard for rules and regulations through her failure to maintain records to support the deductions claimed, as required by section 6001 . Petitioner's lack of compliance justifies the imposition of the section 6662(a) penalty in this case . To reflect the foregoing, Decision will be entered for respondent .

§ 6001 ; 5 - In summary petitioner claimed that he was not obligated to file a Federal income tax return and that he did not have Federal income tax liabilities for 2002, 2003, and 2004 . During 2002, 2003, and 2004 petitioner was a vice principal of a high school and a licensed attorney . Petitioner earned wages of $67,691, $66,542, and $69,107 f

435, 440 (1934) ; see also Rule 142(a) .

1.6001- 1(a), Income Tax Regs. Moreover, they have failed to provide even the minimal substantiation that would permit us to estimate the allowable deduction under Cohan v. Commissioner, 39 F.2d 540, 543- 544 (2d Cir. 1930). Even under Cohan, there must be sufficient evidence in the record to provide a basis upon which an estimate m

was fatal to taxpayer who was attorney, C .P.A ., and IRS audit supervisor), affg . T.C. Memo . 2000-20 ; Emerson v . Commissioner, T .C . Memo . 2001-186 (lawyer liable for accuracy-related penalty for failing to keep adequate records required by section 6001) . Petitioner claimed on his 1990 Form 1040 ordinary losses (other section 1231 losses) and partnership losses (nonpassive losses) from Fleet Street Associates and a short-term capital loss from the entity Butcher & Singer/Keystone Ventur

Section 6001 and the regulations thereunder require taxpayers to maintain adequate books and records of their income ; and expenses . When taxpayers fail to meet their record-keeping obligations, the Commissioner is forced to reconstruct the taxpayers' income and expenses through indirect methods . Indirect methods of income reconstruction have lon

One of those requirements is that an employer must deduct and withhold from-its employees' wages the tax d termined in accordance with the provisions of the Code . 26 U .S .C . § 3402 . In fact, the employer.-it elf can be liable ..to the government for the amount of the tax that must be withheld in accordance with the Code . 26 U .S .C .

We also observe that section 6001 and the regulations promulgated thereunder require taxpayers to maintain records The allowed deductions exceeded the amount of the standard deduction to which petitioner would otherwise have been entitled .

6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, supra at 84; Welch v. Helvering, supra at 115. - 11 - Pursuant to section 162(a), a taxpayer is entitled to deduct all of the ordinary and necessary business expenses paid or incurred during the taxable year in carrying on a trade or business. The taxpayer bears the burden of proving that the

1.6001- 1(a), Income Tax Regs. Moreover, they have failed to provide even the minimal substantiation that would permit us to estimate the allowable deduction under Cohan v. Commissioner, 39 F.2d 540, 543- 544 (2d Cir. 1930). Even under Cohan, there must be sufficient evidence in the record to provide a basis upon which an estimate m

1.6001- 1(a), Income Tax Regs. Moreover, they have failed to provide even the minimal substantiation that would permit us to estimate the allowable deduction under Cohan v. Commissioner, 39 F.2d 540, 543- 544 (2d Cir. 1930). Even under Cohan, there must be sufficient evidence in the record to provide a basis upon which an estimate m

* FOR THE RECORD : Because the IRS has failed re- peatedly in the duty to answer the undersigned's, request for proper filing information, pursuant to 26 USC § 6001, the tax status of the undersigned is un- known for lack of notice (due process) .

1.6001- 1(a), Income Tax Regs. Moreover, they have failed to provide even the minimal substantiation that would permit us to estimate the allowable deduction under Cohan v. Commissioner, 39 F.2d 540, 543- 544 (2d Cir. 1930). Even under Cohan, there must be sufficient evidence in the record to provide a basis upon which an estimate m

Miguel's Income Under section 6001 taxpayers are required to maintain records that enable the Commissioner to determine the taxpayers' correct Federal income taxes .

6001; 14(...continued) posttrial memoranda. He specifically ordered the parties to limit the content of their memoranda to proposed findings of fact. Respondent complied with that order; petitioner did not. In violation of Special Trial Judge Powell’s order, petitioner advances in petitioner’s posttrial memorandum various arguments with respec