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Boser v. Commissioner, 77 T.C. 1124, 1132 (1981). In this
regard, a taxpayer must keep sufficient records to establish the
amount of the deductions or other matters required to be shown on
the taxpayer's return. See sec. 1.6001-1(a), Income Tax Regs.
In the event taxpayers establish that they have incurred
trade or business expenses, but are unable to substantiate the
precise amount of the expenses, we may estimate the amount of the
deductible expenses. Cohan v. Commissioner, 39 F.2d 540, 543-544
(2d Cir. 1930). However, we cannot estimate deductible expenses
unless the taxpayer presents evidence adequate to provide some
rational basis upon which estimates may be made. Vanicek v.
Commissioner, 85 T.C. 731, 743 (1985).
A. Interest Expense Deduction
Petitioner claimed an interest expense deduction in the
amount of $36,051 on Schedule C of his 1991 Federal income tax
return. Respondent disallowed the claimed deduction in its
entirety. At trial, petitioner stated that the deduction is
composed of payments made by petitioner to a corporation and an
individual, respectively, in 1991: Nuuanu Streamside, Inc., and
Steven Hirahara. Petitioner provided documentation in the form
of two checks he issued to these payees.
On September 30, 1991, petitioner paid $185,000 through
business check No. 1926 to an entity denominated Nuuanu
Streamside, Inc. The check was from "Les Hirahara - Realtor".
The memo portion of this check states that it is for the payment
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