- 4 - 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.Page: Previous 1 2 3 4 5 6 7 8 Next
Last modified: May 25, 2011