MORRISON, Judge.
On December 4, 2009, the respondent (the "IRS") issued the petitioners Marilyn Eileen Noz and Gerald Quentin Maguire, Jr. (the "petitioners") a notice of deficiency for tax year 2006. The notice disallowed $31,228 in miscellaneous itemized deductions, comprising $31,070 in unreimbursed employee expense deductions and $158 in other deductions. The notice determined that the petitioners were liable for an income-tax deficiency of $8,311 and a section 6662(a)
The petitioners timely filed a petition disputing the IRS's determinations. We have jurisdiction, pursuant to section 6214, to redetermine the deficiency and the penalty determined in the notice of deficiency.
The parties have stipulated some facts, and they are so found.
During the year in issue, petitioner Marilyn E. Noz ("Noz") resided in Jackson Heights, New York, and petitioner Gerald Q. Maguire, Jr. ("Maguire") resided in Stockholm, Sweden. At all relevant times, the petitioners were husband and wife.
The petitioners, both university professors, have been research collaborators for the last several decades. Since the 1970s, the petitioners have jointly published numerous books, chapters, and articles. Sometimes they were the only authors; sometimes they had coauthors. In 1983, while both petitioners were employed as professors at educational institutions in New York, they made a trip to Sweden. There, they began a collaboration with Sweden-based researchers that continued after the petitioners returned to New York. In 1994, Maguire accepted a full-time professorship in Sweden. At that time, he moved to Stockholm but continued to work with Noz and other colleagues in the United States. Noz remained in the United States and continued to collaborate with Maguire and other researchers in Sweden.
During tax year 2006, the petitioners were both employed as university professors. Maguire taught computer communications at the Royal Institute of Technology in Stockholm, Sweden. He was expected to teach classes, supervise student theses, and conduct and publish his own research. He is still a professor at the Royal Institute of Technology.
From 1974 until her retirement from active teaching in 2009—a timespan that includes the year in issue in this case (2006)—Noz was a professor of radiology at New York University School of Medicine ("NYU") in New York, New York. Her duties at NYU included teaching, supervising student research, and overseeing the computer system at a 24-hour medical clinic. Like her husband, she was expected to conduct and publish original research.
During 2006, the petitioners published one jointly-authored article, "Enhancing the Utility of ProstaScint SPECT Scans for Patient Management", which they coauthored with Grace Chung, Benjamin Y. Lee, J. Keith DeWyngaert, Jay V. Doshi, Elissa L. Kramer, Antoinette D. Murphy-Wolcott, Michael P. Zeleznik, and Noeun G. Kwak. In 2007, they published two jointly-authored articles: "Prone MammoPET Acquisition Improves the Ability to Fuse MRI and PET Breast Scans", which they coauthored with Linda Moy, Fabio Ponzo, Abby E. Deans, Antoinette D. Murphy-Wolcott, and Elissa L. Kramer; and "Improving Specificity of Breast MRI Using Prone PET and Fused MRI and PET 3D Volume Datasets", which they coauthored with Linda Moy, Fabio Ponzo, Antoinette D. Murphy-Wolcott, Abby E. Deans, Mary T. Kitazono, Laura Travascio, and Elissa L. Kramer.
Our determinations and findings of fact regarding the expenses of both petitioners are affected by a supplement to the stipulation of facts. The supplemental stipulation and the original stipulation were executed by the parties on the day of trial. The supplemental stipulation states: "Petitioners provided proof that the expenses herein dispute were paid." As discussed more extensively
In 2006, Maguire made eight trips from Stockholm to New York City. Maguire's flights between Stockholm and New York were all roundtrip flights, originating from and returning to New York.
There is insufficient information in the record for us to determine the dates of Maguire's two other flights or the costs of those tickets.
While in New York, Maguire stayed with his wife at their jointly owned apartment in Jackson Heights. During his time in New York, Maguire worked most days, usually taking one day off per week for personal activities. He divided his work time between (1) the collaborative research he was conducting with Noz and (2) work related to Royal-Institute-of-Technology projects that did not need to be conducted in New York. There is no evidence as to how Maguire allocated his work time between these two categories.
In addition to the trips between Sweden and the United States, Maguire traveled to Chicago to attend the "Motorola Visionary" board meeting and to Los Angeles to do a "site visit" for the National Science Foundation. The record suggests that he traveled to both destinations from Sweden via New York. We are unable to determine from the record when his trips to Chicago and Los Angeles took place, the duration of the trips, or the cost of travel to those destinations. In the course of these two trips, he incurred some meal expenses of indeterminate amounts.
During 2006, Maguire also incurred expenses of $730.12 for internet service at his apartment in Stockholm. The parties separately stipulated the amount of Maguire's internet expenses. Maguire used his home internet service to correspond with Noz regarding their joint academic research. Maguire's employer, the Royal Institute of Technology, did not require him to have internet access in his home.
During 2006, the petitioners collectively incurred $7,652.82 in expenses for the purchase of computers and computer-related equipment, including a cellular phone. This fact is established by the supplemental stipulation, considered in tandem with a statement in the IRS's brief.
An April 15, 2009 letter from the petitioners to the IRS (entered into evidence as Exhibit 3-J) states that the petitioners made the following purchases during 2006: Adobe Acrobat Professional software; a laptop computer; LCD flat-panel monitors; headphones and a mouse; switches; cameras and audio headsets; tools and safety equipment for repairing circuit boards; a Nokia E70 cellular phone; a networking router; gigabit switches and ethernet cards; a USB portable memory stick; and cables and other equipment for facilitating computer presentations. The letter describes the items and how the items were used in conjunction with the petitioners' employment.
Maguire did not request or receive reimbursement from the Royal Institute of Technology for any of the expenses described in this part of the opinion, i.e. "Expenses Attributable to Maguire". This is because the Royal Institute of Technology did not allocate any part of its budget to Maguire's research expenses.
For his work at the Royal Institute of Technology in 2006, Maguire was paid an annual salary of $104,215.
Noz made five trips to Sweden in 2006, each lasting between 14 and 32 days. Noz's flights between New York and Stockholm were all roundtrip flights, originating from and returning to New York. The dates of Noz's five New York-Stockholm trips are as follows:
While in Stockholm, Noz stayed with Maguire at their jointly owned apartment. During her trips to Sweden, Noz generally worked eight or nine hours per day, five or six days per week. She divided this work time between (1) her collaboration with Maguire and other Swedish researchers and (2) work related to her responsibilities at NYU that did not need to be conducted in Sweden. There is no evidence as to how Noz allocated her work time between these two categories. Noz also engaged in some personal activities. She was not reimbursed by NYU for her travel to Sweden.
During 2006, Noz attended two professional conferences, one in San Diego, California, and another in Utrecht, the Netherlands. The record does not reveal the dates of these trips, their cost, or whether Noz incurred meal expenses during this travel.
Also during 2006, Noz incurred $2,026.93 in costs for internet service at her residence in New York. The parties separately stipulated the amount of Noz's internet expense. She used the internet to correspond with Maguire regarding their research collaboration and to monitor the computer system at a 24-hour medical clinic. NYU did not require Noz to have home internet service, and she was not reimbursed by the university for her internet expenses. Finally, as Noz testified, during 2006 she purchased "electronics equipment" for use by her students. As discussed infra p. 34, computers, computer-related equipment, and cellular telephones are "listed property".
The petitioners timely filed their 2006 joint income-tax return. In preparing their return, the petitioners consulted IRS Publications 17, Your Federal Income Tax For Individuals, and 529, Miscellaneous Deductions, in particular the portions concerning research expenses of a college professor. They did not seek professional tax advice or tax preparation services.
On Schedule A, Itemized Deductions, of their return, the petitioners claimed as a deduction $31,070 in "[u]nreimbursed employee expenses" and $158 in "[o]ther expenses".
As will be explained later in the opinion, during 2006, the petitioners incurred the following expenses that could potentially be characterized as travel expenses: (1) the cost of 13 flights between New York and Stockholm, (2) the cost of Maguire's travel to Chicago, (3) the cost of Maguire's travel to Los Angeles, and (4) the cost of Noz's travel to Utrecht (to the extent she was not reimbursed by NYU). The petitioners provided documentation for 11 flights between New York and Stockholm (all five of Noz's flights and six of Maguire's eight flights), the total cost of which was $14,165.96. This $14,165.96 amount could account for a portion of the total $18,543 the petitioners claimed as a deduction for travel expenses. The remaining $4,377.04 conceivably comprises the cost of two of Maguire's New York-Stockholm flights (for which no documentation was provided), the cost of Maguire's travel to Chicago, the cost of Maguire's travel to Los Angeles, and that portion of Noz's costs for travel to Utrecht for which she was not reimbursed by NYU.
The $250 deduction the petitioners claimed for meal expenses corresponds to $499 in expenses they claimed they incurred for meals consumed while traveling away from home.
As for the $12,277 in expenses not related to travel, meals, or entertainment, the IRS concedes in its brief that the $12,277 total comprised deductions the petitioners claimed for expenses in the following categories: $1,153 for professional dues and subscriptions; $89.34 for shipping charges; $624.79 for book purchases; $2,757.05 for home internet service; and $7,652.82 for the purchase of computers and computer-related equipment, including a cellular phone.
On December 4, 2009, the IRS issued the petitioners the statutory notice of deficiency, disallowing $31,228 in miscellaneous itemized deductions. This figure comprises $31,070 in deductions for unreimbursed employee expenses and $158 in deductions for "[o]ther expenses". The IRS determined that, as a result of the disallowed deductions, the petitioners were liable for a deficiency in tax of $8,311. The IRS also determined that the petitioners were liable for a section 6662(a) accuracy-related penalty of $1,662.20.
On February 25, 2010, the petitioners timely filed a petition with the Tax Court, disputing the determinations of the IRS.
A trial was held in New York City on February 7, 2011. On that day, the parties filed a stipulation of facts. We incorporate these stipulated facts in our findings of fact. On the day of trial, the parties also filed a supplement to the stipulation of facts. As noted previously, the supplemental stipulation states as follows: "Petitioners provided proof that the expenses herein dispute were paid." The term "expenses herein dispute" is ambiguous. It is also unclear what evidence was included in the "proof" petitioners "provided" and what legal significance should be accorded the parties' agreement that there is "proof" that the disputed expenses were paid. Neither party's brief offers a position on those questions.
We cannot resolve the issues in this case without resolving the ambiguities in the supplemental stipulation. Resolving these ambiguities, we construe the supplemental stipulation as follows:
Neither party argues that the supplemental stipulation represents a concession by the IRS that the petitioners were entitled, under section 162, to any deductions or that they substantiated their deductions in accordance with the requirements of section 274.
In its notice of deficiency, the IRS disallowed $31,228 in miscellaneous itemized deductions the petitioners claimed on Schedule A of their 2006 income-tax return, which comprised $31,070 in deductions for unreimbursed employee expenses and $158 in other miscellaneous itemized deductions. After issuing the notice, the IRS conceded that the petitioners were entitled to deduct the following amounts: $1,153 in professional dues and subscriptions; $89.34 in shipping charges; $624.79 in book purchases; and $158 in other miscellaneous itemized deductions. However, the IRS asserts that the petitioners are not entitled to deduct as unreimbursed employee expenses $18,543 for travel; $250 for meals; $2,757.05 for home internet service; and $7,652.82 for the purchase of computers, computer-related equipment, and a cellular phone. The IRS further asserts that, to the extent any of the disputed deductions attributable to Maguire are otherwise permissible, the petitioners are prohibited by section 911(d)(6) from deducting amounts allocable to the portion of Maguire's salary excluded from gross income under section 911(a)(1). We address each of these arguments in turn.
In deficiency proceedings before the Tax Court, the burden of proof generally rests with the taxpayer. Rule 142(a)(1). Section 7491 shifts the burden of proof to the IRS with respect to a given factual issue where a taxpayer (1) introduces credible evidence with respect to that issue, (2) meets all applicable substantiation requirements, (3) complies with all record-keeping requirements, and (4) cooperates with any reasonable requests for information. Sec. 7491(a);
Section 162 allows a taxpayer to deduct all ordinary and necessary expenses incurred by the taxpayer in carrying on a trade or business. Sec. 162(a). An expense is "ordinary" if it is "normal, usual, or customary" in the taxpayer's trade or business.
A trade or business includes performing services as an employee, and, thus, an employee may deduct expenses that are ordinary and necessary to his or her employment.
As explained below, we hold that of the $29,202.87 of unreimbursed employee expenses in dispute, the allowable deduction is zero.
The parties stipulated that, during 2006, the petitioners paid $2,026.93 for home internet service at Noz's residence in New York and $730.12 for home internet service at Maguire's residence in Stockholm. The parties further stipulated that the petitioners claimed the sum of these two amounts, $2,757.05, as a deduction on their 2006 income-tax return. The IRS contends that this amount is not deductible because the petitioners have not proven it is allowable under section 162 or, in the alternative, because they have failed to substantiate the deduction pursuant to section 274.
A taxpayer may deduct the cost of home internet service pursuant to section 162 if the expense is ordinary and necessary in the taxpayer's trade or business.
Under the
The petitioners conduct academic research in collaboration with each other and other colleagues in other parts of the world. They both testified credibly that home internet service was used in such collaborations. Furthermore, the petitioners were not reimbursed by their employers for the costs of home internet service, nor were they entitled to reimbursement for such costs. Therefore, the petitioners have demonstrated that they incurred a deductible expense, i.e. the portion of the home internet charges attributable to business use. However, the petitioners provided no evidence, testimonial or otherwise, regarding the percentage of internet use that was devoted to business purposes and the percentage of internet use that was devoted to personal purposes. Any estimate we might make regarding the deductible portion of the expense would be wholly arbitrary. Because we are unable to estimate the portion of internet use devoted to business purposes, we hold that the petitioners are not entitled to a deduction for any of the costs incurred for home internet service during 2006.
A taxpayer may claim a deduction for travel expenses if such expenses are reasonable, necessary, and directly attributable to the taxpayer's business. Sec. 162(a)(2); sec. 1.162-2(a), Income Tax Regs. If the trip is undertaken for both business and personal reasons, travel expenses are deductible only if the primary purpose of the trip is business.
In addition to the requirements of section 162, section 274(d) provides that expenses attributable to travel (including meals while traveling) and certain property (referred to as "listed property") are not deductible unless the taxpayer "substantiates" (1) the amount of the expense, (2) the time and place of the travel or use of the property, and (3) the business purpose of the expenditure.
Generally, where a taxpayer can show that he or she incurred a deductible expense but cannot substantiate the precise amount, the Court should approximate the amount of the expense on the basis of the facts available in the record.
The petitioners' travel between Sweden and New York was motivated by both business and personal concerns. We must therefore determine whether the primary motive for this travel was business or personal.
First, the fact that the petitioners are husband and wife strongly suggests a personal motive. Collectively, the petitioners made 13 trips to each other's respective city of residence during 2006. During these trips, the petitioners stayed at their jointly owned apartments in New York and Stockholm. The duration of the trips allowed the petitioners to spend a significant portion of the year together, despite living in separate countries.
Second, while abroad, the petitioners did not work solely on their research collaboration, which required foreign travel. Some of their work time while traveling was devoted to work activities unrelated to their research collaboration that did not necessitate overseas travel.
Third, the petitioners did not offer any evidence, testimonial or otherwise, as to how they allocated their time between activities related to their research collaboration and other work activities.
Fourth, neither petitioner offered any details concerning the nature of their research collaboration, the collaborative activities undertaken, their research objectives, or how the travel expenses contributed to the accomplishment of these research objectives. Both petitioners testified that their travel allowed them to collaborate with each other and researchers at other institutions, but they did not identify a single one of the other researchers by name, nor did they identify a single meeting with another researcher that took place during any of their trips. The petitioners have offered almost no evidence as to what they did during their trips abroad or how these trips facilitated the achievement of professional objectives. Thus, it is difficult for us to conclude that the work requiring foreign travel predominated over the work that did not require foreign travel.
On the basis of the frequency of travel, the personal relationship between the petitioners, and the petitioners' failure to offer any evidence, beyond broad generalities, of how the trips advanced any stated business purpose, we find that the New York-Stockholm trips were motivated primarily by personal concerns. The petitioners are therefore not entitled to deduct the costs of their flights between New York and Stockholm.
Because the petitioners' New York-Stockholm flight expenses are not deductible pursuant to section 162, we need not address whether these expenses were properly substantiated for the purposes of section 274(d).
Regulations issued pursuant to section 274(d) provide that no deduction is allowed for travel expenses unless the taxpayer "substantiates" the following elements: (1) the amount of each separate travel expense; (2) the dates of departure and return; (3) the destination of travel; and (4) the business purpose for the travel. Sec. 1.274-5T(b)(1) and (2), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). Even if a travel expense meets the requirements of section 162, it is not deductible unless the above requirements are satisfied.
An element is substantiated for the purposes of section 274 by either "adequate records" or "sufficient evidence". Sec. 274(d). To substantiate expenses by "adequate records", the taxpayer must maintain and produce some combination of records or other documentary evidence that, cumulatively, establishes each element of the expense or use.
The petitioners claimed as deductions expenses attributable to Maguire's travel to Chicago and Los Angeles, along with the cost of Noz's travel to Utrecht (to the extent that the Utrecht expenses were not reimbursed by NYU). None of the evidence, testimonial or otherwise, establishes the price of the tickets for any of these trips (element (1)). Thus, even setting aside the question of whether the petitioners' evidence was in the correct form to satisfy section 274, i.e. "adequate records" or "sufficient evidence", the evidence does not contain sufficient information to satisfy element (1). We are also unable to determine the dates of these trips (element (2)) from the information in the record. Some notations in Noz's day planner might theoretically correspond to the dates of Maguire's Chicago trip and Noz's Utrecht trip. However, Noz offered no testimony as to the meaning or accuracy of these notations. It would be purely speculative for us to interpret these notations as an accurate record of the dates of Maguire's travel to Chicago for the Motorola meeting or Noz's travel to Utrecht.
No documentary evidence establishes the business purpose of the trips in question (element (4)). Thus, the petitioners have not established element (4) by "adequate records". Although both petitioners testified about the purpose of the travel, the testimony was vague and contained no information about what activities the petitioners engaged in. The testimony thus does not establish the business purpose of the trips. This defect alone means that the petitioners did not establish element (4) by sufficient evidence. In addition, there is no evidence corroborating the petitioners' own statements about business purpose. Maguire offered no evidence corroborating his statements.
The petitioners have failed to establish that they met the requirements for deducting these additional travel expenses in accordance with section 274(d).
Deductions for meal expenses incurred during travel away from home are also subject to the strict substantiation requirements of section 274(d). Sec. 274(d)(1). A taxpayer may not deduct a meal expense unless he or she "substantiates": (1) the amount of the expense, (2) the time and place of the travel during which it occurred, and (3) its business purpose.
We need not consider whether the form of the evidence meets the requirements of 274(d) because the evidence does not contain any of the information required to establish the three elements listed above.
In establishing the amounts of meal expenses (element (1)), a taxpayer is permitted by regulation to aggregate "the daily cost of the traveler's own breakfast, lunch, and dinner." Sec. 1.274-5T(b)(2)(i), Temporary Income Tax Regs.,
To satisfy element (2), the petitioners must establish the time and place of travel during which their meal expenses were incurred. Neither the supplemental stipulation nor the record tells us on what trip the meal expenses were incurred. As we explained
Because the petitioners have not substantiated their meal expenses in accordance with the requirements of section 274(d), they are not entitled to a deduction for these expenses.
In order to deduct expenses attributable to the purchase of certain property— "listed property"—a taxpayer must satisfy the strict-substantiation requirements of section 274(d). Sec. 274(d)(4). "Listed property" includes computers, computer-related peripheral equipment, and cellular phones.
On their 2006 joint income-tax return, the petitioners claimed as a deduction the $7,652.82
We hold that the petitioners failed to substantiate these listed-property expenses as required by section 274(d). They are, therefore, not entitled to deduct those expenses.
By operation of the supplemental stipulation, the petitioners are also considered to have incurred expenses of an unknown amount for the purchase of the equipment described in the April 15, 2009 letter. The expenses the petitioners incurred for the purchase of these items are listed-property expenses, subject to the strict substantiation requirements of section 274(d). The letter establishes element (4), the business purpose for which the items were purchased, which is relevant to element (2). However, the letter does not establish the cost of any item or the total cost of all the items described (element (1)). It also fails to establish the date on which any item was purchased (element (3)). The petitioners are required, under section 274(d), to substantiate elements (1) and (3) by either "adequate records" or "sufficient evidence". Because the trial evidence does not establish these elements, we hold that the petitioners are not entitled to deduct expenses incurred for the purchase of the equipment described in the April 15, 2009 letter. Finally, by operation of the supplemental stipulation, Noz is deemed to have incurred expenses of an indeterminate amount for the purchase of "electronics equipment". As we found
The petitioners argue that, even if their miscellaneous deductions are not authorized by sections 162 and 274, expenses attributable to Maguire are nevertheless deductible pursuant to section 174. That section allows a taxpayer to immediately deduct research and experimental expenses incurred in connection with the taxpayer's trade or business.
The petitioners have not put forth any evidence as to what types of activities Maguire engaged in while conducting his research. We are, therefore, unable to determine whether any of his expenses pertained to research in the "experimental or laboratory sense". Because the petitioners failed to put forward sufficient facts showing that Maguire's expenses are deductible pursuant to section 174, we reject this argument.
Section 911 allows some individuals the option to exclude some foreign-earned income from gross income. Sec. 911(a)(1). The amount of foreign-earned income that a taxpayer may exclude under section 911 cannot exceed $82,400. Sec. 911(b)(2)(D). Section 911 also provides that where a taxpayer elects to exclude foreign-earned income, he or she cannot claim any deductions or credits allocable to the excluded income. Sec. 911(d)(6). On their 2006 return, the petitioners reported that approximately 79% of Maguire's salary was excluded from gross income under section 911. The IRS argues that, because the petitioners elected to exclude 79% of Maguire's salary from gross income, they are not entitled to deduct any unreimbursed employee expenses that are properly allocable to the excluded portion of his salary.
Because we find that the petitioners are not entitled to deduct any of Maguire's disputed expenses, we need not decide whether any portion of those deductions is subject to the limitations of section 911(d)(6).
Under section 7491(c), the IRS bears the burden of production with respect to penalties. In order to meet this burden, the IRS must come forward with sufficient evidence that it is appropriate to impose a particular penalty.
In the notice of deficiency, the IRS determined that the petitioners are liable for a section 6662(a) accuracy-related penalty of $1,662.20. Section 6662(a) imposes a penalty of 20% of any underpayment attributable to (1) a substantial understatement of income tax or (2) negligence or disregard of rules and regulations.
Whether any portion of an underpayment is attributable to negligence or a substantial understatement of income tax, no accuracy-related penalty is imposed on any portion with respect to which the taxpayer had reasonable cause and acted in good faith.
The IRS determined that the petitioners are liable for a section 6662(a) accuracy-related penalty attributable to a substantial understatement of income tax or, alternatively, negligence. Because we find that the petitioners acted with reasonable cause and in good faith in preparing their 2006 income-tax return, we do not decide whether the IRS satisfied its burden of production with respect to its substantial understatement or negligence theories.
In preparing their return, the petitioners specifically consulted IRS publications 17 and 529. The petitioners also testified credibly that they retained original receipts for all of their deducted expenses. The petitioners introduced as evidence receipts for 11 of their flights between New York and Stockholm at a cost of $14,165.96. As for the remaining expenses, the petitioners did not introduce any receipts for those expenses at trial. However, the supplemental stipulation—that the petitioners "provided proof that the expenses herein dispute were paid"—indicates that the petitioners retained some sort of documentation evidencing their expenses and produced it to the IRS. As we have explained, none of the disputed expenses are deductible, and in particular, some of the expenses do not satisfy the strict substantiation requirements of section 274(d). We nonetheless find that the petitioners at least partially complied with record-keeping requirements and that they made a good-faith effort to act in accordance with applicable tax law. On the basis of all the facts and circumstances—in particular their testimony and the supplemental stipulation—we find that the petitioners acted with reasonable cause and in good faith in preparing their 2006 joint return. They are therefore not liable for a section 6662(a) accuracy-related penalty.
To reflect the foregoing,
As noted before, a taxpayer can substantiate expenses subject to sec. 274(d) by either (1) maintaining and producing "adequate records" establishing each element of an expense or (2) by "sufficient evidence", i.e. a combination of the taxpayer's own statement "containing specific information in detail" as to each element and some other corroborating evidence. Sec. 274(d); sec. 1.274-5T(c), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). To satisfy the requirement through "adequate records", the taxpayer must not only maintain "adequate records" but must also "produce" such records. (The regulation does not expressly say who the records must be produced to, the IRS or the court.) The petitioners had the opportunity to present at trial any records they maintained or to request that the IRS produce any records that the petitioners had previously submitted (and then to submit at trial any evidence so discovered). They did neither. Consequently, we do not know what the petitioners produced to the IRS, and we are, therefore, unable to determine whether the materials the petitioners produced established each element of their expenses by "adequate records". Had the petitioners testified specifically as to each of the elements they were required by sec. 274 to substantiate, we might conceivably be able to find that the missing receipts constituted corroborating evidence and that therefore they had substantiated their expenses by "sufficient evidence". As it is, we have neither the alleged receipts nor the petitioners' testimony as to the requisite elements of each expense. The petitioners bear the burden of proof with respect to deductions claimed on their return.