Stephen J. Cotta, Sr. - Page 4




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          In the statutory notice of deficiency, respondent disallowed in             
          full the cost of goods sold and the business expense deductions             
          because petitioner did not establish that each was “paid or                 
          incurred during the taxable year and that the expense was                   
          ordinary and necessary” to his business.1                                   
               Expenses which are ordinary and necessary in carrying on a             
          trade or business generally may be deducted in the year in which            
          they are paid.  Sec. 162(a).  The cost of goods sold is                     
          subtracted from gross receipts in determining a taxpayer’s gross            
          income.  Sullenger v. Commissioner, 11 T.C. 1076 (1948).                    
               A taxpayer generally must keep records sufficient to                   
          establish the amounts of the items reported on his Federal income           
          tax return.  See sec. 6001; sec. 1.6001-1(a), (e), Income Tax               
          Regs.  However, in the event that a taxpayer establishes that a             
          deductible expense has been paid but is unable to substantiate              
          the precise amount, we generally may estimate the amount of the             
          deductible expense bearing heavily against the taxpayer whose               
          inexactitude in substantiating the amount of the expense is of              
          his own making.  See Cohan v. Commissioner, 39 F.2d 540, 543-544            
          (2d Cir. 1930).  We cannot estimate a deductible expense,                   
          however, unless the taxpayer presents evidence sufficient to                



          1The other adjustments made in the notice of deficiency were                
          to the itemized deductions; these adjustments are computational             
          and will be resolved by the Court’s holding on the issue in this            
          case.                                                                       




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