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Commissioner, 39 F.2d 540 (2d Cir. 1930). Under Cohan, in the
event that a taxpayer establishes that he or she has incurred a
deductible expense but is unable to substantiate the precise
amount of the expense, we may estimate the amount of the
deductible expense. We cannot, however, estimate deductible
expenses unless the taxpayer presents evidence sufficient to
provide some rational basis upon which estimates may be made.
See Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).
Petitioner kept no documentation regarding any expenses or
costs relating to the computer chip sales. Likewise, petitioner
has no documentation regarding gross sales of the computer
chips.3 As a result, petitioners ask us to back into a cost of
sales number based on petitioner’s testimony that Lee’s return on
the computer chip sales was approximately double the return to
petitioner. Thus, to quote petitioners, “Since * * * [petitioner
had] a 6% return, Lee’s return would be about 12%, effectively
translating into a cost of sales of 72%.” This information
simply does not provide us with the detail needed to make an
estimate. Accordingly, even if we were to conclude that
petitioners could claim cost of goods sold, we would be unable to
determine the proper amount.
3 During trial, petitioner testified that he requested his
assistant to keep records of every deal with Lee, but later
discovered that whatever records were kept were discarded by the
assistant when he was caught stealing trade secrets from
petitioner in regard to another venture.
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