Taxpayers can generally deduct the ordinary and necessary costs of doing business, but they must keep adequate records to prove the costs are legitimate. When the owner of a welding business failed to file timely tax returns, the IRS issued a notice of tax deficiency for $183,239 plus penalties. He challenged the tax bill and filed a late tax return, which claimed millions of dollars in tax deductions. He had no supporting documents, relied mostly on financial statements compiled after litigation began and gave testimony that was deemed to be hearsay. The U.S. Tax Court ruled that he failed to meet the burden of proof and allowed the tax bill to stand. (TC Memo 2023-32)
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