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The next issue to be decided is whether the S Corporation is
entitled to deduct, pursuant to section 162(a), attorneys' fees
in the amount of $34,226 for its 1990 taxable year. The parties
agree that section 265(a)(1) disallows a deduction for attorneys'
fees paid by the S Corporation in recovering the insurance
proceeds. Petitioners, however, contend that the attorneys' fees
were incurred in the defense of both the embezzlement suit and
the insurance suit. Petitioners contend that 65 percent of the
total attorneys' fees were incurred to defend the embezzlement
suit and are deductible pursuant to section 162(a). Respondent
concedes that the S Corporation paid $34,226 in attorneys' fees
during 1990 but contends that petitioners did not establish that
any portion of such fees related to the embezzlement suit.
Taxpayers are required to maintain records that are
sufficient to enable the Commissioner to determine their correct
tax liability. See sec. 6001; sec. 1.6001-1(a), Income Tax
Regs.; Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965).
Additionally, a taxpayer who claims a deduction must bear the
burden of substantiating the amount and purpose of the item
claimed. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975); sec.
1.6001-1(a), Income Tax Regs. Under certain circumstances, if a
taxpayer establishes the entitlement to a deduction but does not
establish the amount of the deduction, we may estimate the amount
allowable, Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), if
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