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In the amended answer, respondent asserts that petitioners
underreported their gross income to the extent of $159,282 for
taxable year 1990 and overreported their gross income to the
extent of $41,512 for taxable year 1991. Additionally, during
the audit, petitioners claimed a bad debt deduction in the amount
of $30,000 that was not reflected on their Federal income tax
returns or the notice of deficiency.
Respondent determined that, on the basis of all of the
adjustments in the notice of deficiency, petitioners were liable
for additions to tax and penalties pursuant to sections
6651(a)(1) and 6662(a). In the amended answer, to reflect the
adjustments related to petitioners' underreporting and
overreporting of income, respondent increased the addition to tax
and penalty for 1990 and decreased the addition to tax and
penalty for 1991.
OPINION
The first issue to be decided is whether petitioners have
substantiated their claimed Schedule C business expenses that
respondent disallowed to the extent of $118,371 for taxable year
1990 and $144,187 for taxable year 1991. Petitioners argue that
they are entitled to the deductions, citing Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930) (under certain
circumstances, when taxpayers establish that they incurred a
trade or business expense but do not substantiate the amount of
the expense, the Court may estimate the amount of the deductible
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