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When a taxpayer's records have been destroyed or lost due to
circumstances beyond his control, he is generally allowed to
substantiate his deductions through secondary evidence. A
taxpayer in this type of situation may reconstruct his expenses
through other credible evidence. Watson v. Commissioner, T.C.
Memo. 1988-29; sec. 1.274-5(c)(5), Income Tax Regs. If no other
documentation is available, we may, although not required to do
so, accept credible testimony of a taxpayer to substantiate a
deduction. Watson v. Commissioner, supra.
Petitioner's testimony regarding his business expenses was
candid and credible. Petitioner testified that he kept books and
receipts. Further, he was able to itemize certain expenditures
in detail at trial. In contrast, respondent did not controvert
petitioner's testimony in any respect. Respondent neither
questioned whether petitioner was in fact involved in a
"business", nor claimed that any of petitioner's deductions were
fabricated or overstated. Further, respondent did not challenge
petitioner's claim that his records were destroyed in a fire.
The amounts claimed as business deductions by petitioner in
1986 are allowable provided the expenditures were ordinary and
necessary in petitioner's trade or business. Sec. 162(a). As
stated above, we believe that petitioner has met his burden of
substantiating that he actually incurred the expenses.
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