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3. Schedule E Deductions
Section 212 provides a deduction for all ordinary and
necessary expenses paid or incurred with respect to management,
conservation, and maintenance of property held for production of
income, including real property. Sec. 1.212-1(h), Income Tax
Regs.
A taxpayer is required to maintain records sufficient to
establish the amount of his income and deductions. Sec. 6001;
sec. 1.6001-1(a), (e), Income Tax Regs. A taxpayer must
substantiate his deductions by maintaining sufficient books and
records to be entitled to a deduction under section 212.
When a taxpayer establishes that he has incurred a
deductible expense, but is unable to substantiate the exact
amount, we are, in some circumstances, permitted to estimate the
deductible amount. Cohan v. Commissioner, 39 F.2d 540, 543-544
(2d Cir. 1930). We can estimate the amount of the deductible
expense only when the taxpayer provides evidence sufficient to
establish a rational basis upon which the estimate can be made.
Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).
The record is void of adequate receipts, records, or other
evidence that would provide a rational basis upon which an
estimate could be made. Therefore, petitioner is not entitled to
deductions in excess of the amounts permitted by respondent.
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Last modified: May 25, 2011