- 38 -
if a taxpayer establishes that a deductible expense was paid,
even though the precise amount has not been established. Cohan
v. Commissioner, 39 F.2d at 543-544. We are satisfied by the
testimony of petitioner, Ms. Stacey, and Mr. Blackburn that
petitioner incurred deductible band expenses during the years in
issue. Petitioner and Ms. Stacey both testified that petitioner
hired bands to play at the Bullfrog throughout the years in
issue. Mr. Blackburn, the local entertainment agent, testified
that he personally placed bands at the Bullfrog during the years
in issue. That petitioner incurred deductible band expenses is
further corroborated by the stipulated fact that petitioner
advertised bands and incurred band advertising expenses. From
such advertising expenses we draw the reasonable inference that
petitioner did, in fact, pay some amount of deductible band
expenses.
Relying on Professional Servs. v. Commissioner, 79 T.C. 888
(1982), respondent contends that the Cohan rule is inapplicable
for all of the years in issue because the evidence is
insufficient to make a reasonable estimation of petitioner's band
expenses.37
37 Citing Lerch v. Commissioner, 877 F.2d 624 (7th Cir. 1989),
affg. T.C. Memo. 1987-295, respondent also argues that Cohan v.
Commissioner, 39 F.2d 540 (2d Cir. 1930), should not be invoked
where the claimed but unsubstantiated deductions are of a sort
for which the taxpayer could have and should have maintained the
necessary records. Absent stipulation to the contrary, the
instant case is appealable to the Court of Appeals for the Second
(continued...)
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