National Industrial Investors, Inc. - Page 19

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            underlying documentation.  Petitioner concedes that it had                                 
            unreported service income, but denies that its failure to report                           
            it was negligent.                                                                          
                  When a taxpayer contests the Commissioner's determination,                           
            the burden of proof is ordinarily on the taxpayer to show that                             
            the Commissioner's determination is in error.  Rule 142(a).  The                           
            taxpayer's burden of proof includes the burden of substantiation.                          
            Nevertheless, where the taxpayer is unable to substantiate                                 
            expenses through adequate records or other proof, the Court may                            
            estimate the deductible amount, if some deductible amount is                               
            suggested by other evidence, under the so-called Cohan rule,                               
            bearing heavily, if the Court chooses, upon the taxpayer whose                             
            inexactitude is of its own making.  Cohan v. Commissioner, 39                              
            F.2d 540 (2d Cir. 1930).  The Cohan rule does not apply to                                 
            travel, entertainment, gifts, and listed property.  Sec. 274(d).                           
                  Petitioner's net operating loss deductions for 1989 and                              
            1990, for present purposes, consist of four parts: (1) NII's                               
            depreciation deductions, (2) NII's interest deductions, (3) NII's                          
            other deductions, and (4) losses incurred by NII's subsidiaries.                           
            Our determination of petitioner's unadjusted basis in the Burke                            
            Property will determine not only the depreciation deductions for                           
            the net operating losses in prior years, but will also establish                           
            petitioner's entitlement to these deductions in the current                                
            years.  Furthermore, our resolution of the deductibility of the                            

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