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Section 162(a) allows a taxpayer to deduct all ordinary and
necessary business expenses paid or incurred during the taxable
year in carrying on any trade or business. No deduction is
allowed for personal, living, or family expenses. See sec. 262.
A taxpayer must substantiate any deductions claimed and bear
the burden of substantiation. See Hradesky v. Commissioner, 65
T.C. 87, 89-90 (1975), affd. per curiam 540 F.2d 821 (5th Cir.
1976). Taxpayers are required to maintain adequate records
sufficient to enable the Commissioner to determine the taxpayer's
correct tax liability. See Meneguzzo v. Commissioner, 43 T.C.
824, 831-832 (1965). Generally, if a claimed business expense is
deductible, but the taxpayer is unable to substantiate it, the
Court is permitted to make as close an approximation as it can.
See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). That
estimate, however, must have a reasonable evidentiary basis. See
Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).
In addition to the requirements of section 162, section
274(d) requires strict substantiation of certain expenses
including those incurred with respect to any listed property as
defined in section 280F(d)(4), which includes any passenger
automobile. A taxpayer is required to substantiate expenses for
listed property by establishing the amount, time, place, and
business purpose of the expense. See sec. 274(d). This section
supersedes the doctrine in Cohan v. Commissioner, supra. See
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Last modified: May 25, 2011