- 18 -
Sandoval v. Commissioner, T.C. Memo. 2000-189 (we may estimate
basis). However, there must exist some reasonable evidentiary
basis upon which to make such an estimate. Vanicek v.
Commissioner, 85 T.C. 731, 742-743 (1985); Edwards v.
Commissioner, T.C. Memo. 2002-169.17
Except with respect to the interest reserves which were set
up with respect to those loans, petitioners claim that the entire
amounts of the loans represent expenses that are deductible or
which add to their basis in the Atherton project. Petitioners
contend that their position is based on the common sense that
“construction loans are not distributed until and unless the
builder proves that the applicable work has been done”.
As a general matter, we might agree that the Atherton
project gave rise to deductible expenses or expenses that
increased basis. The testimony of Richard X. Waters, vice
president of Pacific, Allan Butler, Pacific’s jobsite inspector,
and Jimmy Dean Black, an employee of First National, indicates
17Under sec. 274, certain business expenses are subject to
more stringent substantiation rules. Those business expenses
include traveling expenses, entertainment expenses, meal
expenses, and expenses with respect to certain listed property
such as passenger automobiles. Secs. 274(d), 280F(d)(4). The
rules under sec. 274 supersede our discretion to estimate
expenses under the doctrine of Cohan v. Commissioner, 39 F.2d 540
(2d Cir. 1930). Sanford v. Commissioner, 50 T.C. 823, 827-828
(1968), affd. 412 F.2d 201 (2d Cir. 1969). We cannot discern
from the record, and petitioners have not shown, what amounts of
the various loans, if any, represent the type of expenses covered
by the rules of sec. 274.
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