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for an addition to tax under section 6651(a)(1). Basically, this
is a substantiation case.
Deductions are strictly a matter of legislative grace.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Taxpayers must substantiate any deductions claimed. Hradesky v.
Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821
(5th Cir. 1976). A taxpayer must keep sufficient records to
establish the amount of the deductions. Sec. 6001.
When a taxpayer fails to keep records, but a court is
convinced that deductible expenditures were incurred, the court
may make an approximation, bearing heavily upon the taxpayer
"whose inexactitude is of [her] own making." Cohan v.
Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). We cannot
estimate deductible expenses, however, unless the taxpayer
presents evidence sufficient to provide some rational basis upon
which estimates may be made. Vanicek v. Commissioner, 85 T.C.
731, 743 (1985). Nor may a Cohan estimate be made of expenses
that are subject to the substantiation requirements of section
274(d).
Section 162(a) allows a deduction for the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Whether an expenditure is
ordinary and necessary is a question of fact. Commissioner v.
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