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Discussion
1. Deductions and Cost of Goods Sold
Deductions are a matter of legislative grace. INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992). A taxpayer “shall keep
such permanent books of account or records, including
inventories, as are sufficient to establish the amount of gross
income, deductions, credits, or other matters required to be
shown” on a tax return. Sec. 1.6001-1(a), Income Tax Regs.; see
also Meneguzzo v. Commissioner, 43 T.C. 824, 831 (1965). Except
as otherwise provided in section 274,3 when the evidence shows
that a taxpayer incurred a deductible expense, but the exact
amount cannot be determined, the Court may “make as close an
approximation as it can, bearing heavily if it chooses upon the
taxpayer whose inexactitude is of his own making.” Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). There must,
however, be some basis upon which such an approximation can be
made. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).
Petitioner has the burden of substantiating his deductions.
Rule 142. Petitioner has no records whatsoever. His argument,
as he expresses it, is:
Normally * * * my expenses would be two-thirds of my gross
[receipts]. Here, my expenses were only half of what my
gross was, and that would be the same with any plumbing and
heating business.
3 None of the disallowed deductions are subject to sec. 274.
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