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III. Deductions
A. In General
Section 16112 allows deductions in computing taxable income,
for the items specified in sections 162 (trade or business
expenses), 163 (interest), 165 (losses), 166 (bad debts), and 167
(depreciation), among others.
Deductions are a matter of legislative grace, and a taxpayer
seeking a deduction has the burden of overcoming the presumption
of correctness that attaches to respondent's factual
determinations in the notice of deficiency. Rule 142(a); New
Colonial Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v.
Helvering, 290 U.S. at 115. However, if the record provides
sufficient evidence that a cash basis taxpayer has paid and
incurred a deductible expense in an amount greater than what
respondent allows, but the taxpayer is unable to adequately
substantiate the amount of the deduction, then the Court is to
estimate the amount of the expense and allow the deduction to
that extent. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d
Cir. 1930).
In Cohan, the taxpayer claimed large travel and
12SEC. 161. ALLOWANCE OF DEDUCTIONS.
In computing taxable income under section 63, there shall be
allowed as deductions the items specified in this part [part VI,
relating to itemized deductions for individuals and
corporations], subject to the exceptions provided in part IX
(sec. 261 and following, relating to items not deductible).
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