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Also, because petitioners’ expert’s report was based, in
large part, on hearsay evidence, and not on complete and legible
books and records of Cal Ben or of petitioners, the report is not
entitled to additional weight under rule 1006 of the Federal
Rules of Evidence as a summary of otherwise admissible voluminous
records.
Petitioner testified that $50,455 in 1985 and $84,078 in
1987 of payments from unreported sales deposited into the
Lloyds/Sanwa account were used to purchase inventory and should
be treated as additional cost of goods sold. It appears,
however, that these claimed additional inventory purchases were
already taken into account as costs of goods sold in Cal Ben’s
purchase journal and partnership tax returns.
With regard to illegible checks drawn on the Lloyds/Sanwa
account and expenses allegedly incurred for business travel,
entertainment, and gifts, the canceled checks and petitioner's
unsupported testimony fail the substantiation requirements of
section 274(d).
The record in this case provides no basis, under Cohan v.
Commissioner, 39 F.2d 540 (2d Cir. 1930), for estimating alleged
additional business expenses of Cal Ben. Other than expenses the
parties have agreed to, no credible evidence supports
petitioners’ claim that additional business expenses were
incurred by Cal Ben, and no credible evidentiary basis was
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