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be of a common or frequent occurrence in the type of business
involved. Deputy v. Du Pont, 308 U.S. 488, 495 (1940). No
deduction is allowed for personal, living, or family expenses.
Sec. 262(a).
Generally, if a claimed business expense is deductible, but
the taxpayer is unable to substantiate it, the Court is permitted
to make as close an approximation as it can, bearing heavily
against the taxpayer whose inexactitude is of his or her own
making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.
1930). The estimate must have a reasonable evidentiary basis.
Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).
The issue is whether petitioners substantiated the amounts
purportedly paid to various subcontractors or workers during the
years in issue.
Petitioners ask the Court to find they incurred ordinary and
necessary business expenses during the years in issue. Although
they admit they do not have the records to substantiate every
dollar spent, they believe their testimony and other evidence
sufficiently establish that labor expenses were incurred during
the years in issue. We agree with petitioners that it is
plausible that petitioners hired workers to assist in the
installation process; however, we have no basis for determining
how much was actually paid during the years in issue. The Cohan
rule allows the Court to make as close an approximation as it can
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Last modified: May 25, 2011