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the subject transactions; it is to facilitate a means
of periodically determining profitability and
analyzing expenses such that proper cost saving
measures might be implemented in a timely and
efficient manner. [Burger v. Commissioner, T.C. Memo.
1985-523 (citing Golanty v. Commissioner, 72 T.C.
411, 430 (1979)), affd. 809 F.2d 355 (7th Cir.
1987).]
The 1992 and 1993 expense journals admitted into evidence were
merely summaries of the expenses reflected on the checks and
receipts; they were not used to improve the performance of
petitioners’ losing venture. See Steele v. Commissioner, T.C.
Memo. 1983-63 (checks served as adequate substantiation for
claimed expenses but were not businesslike records).
While a taxpayer need not maintain a sophisticated cost
accounting system, the taxpayer should keep records that enable
the taxpayer to make informed business decisions. See Burger v.
Commissioner, 809 F.2d 355, 359 (7th Cir. 1987), affg. T.C. Memo.
1985-523. For a taxpayer’s books and records to indicate a
profit motive, the books and records should enable a taxpayer to
cut expenses, increase profits, or evaluate the overall
performance of the operation. See Abbene v. Commissioner, T.C.
Memo. 1998-330.
Petitioners presented no evidence that their records were
used to implement cost-saving measures or to improve
profitability. Petitioners urge us to consider their tax
returns, which contain depreciation schedules, expense summaries,
and other information from which business decisions could be made
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