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Where taxpayers have trade or business income, they
ordinarily have business and other deductions. Deductions are
strictly a matter of legislative grace, however, and petitioners
bear the burden of providing evidence to substantiate the claimed
deductions. See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992). A taxpayer must keep sufficient records to
establish their amount. See sec. 6001. Except in the case of
expenses subject to section 274, if the taxpayer's records are
inadequate or there are no records, we may still allow a
deduction based on a reasonable estimate. See Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). However, the
taxpayer must present evidence sufficient to provide some
rational basis upon which estimates of deductible expenses may be
made. See Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).
In this case, petitioners provided no evidence at trial or
argument on brief that they are entitled to deductions from their
income.6 Accordingly, we cannot estimate petitioners' deductions
under the Cohan rule.
6At trial, this Court repeatedly asked petitioners whether
they were entitled to various deductions from their income.
Petitioners refused to offer any evidence substantiating
deductions. This Court also held the record open for 10 days
after the trial to allow petitioners to substantiate any
deductions. Petitioners presented no posttrial evidence
substantiating the entitlement to deductions.
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