- 19 -
establishes that he or she paid or incurred a deductible expense
but does not establish the precise amount, we may in some
circumstances estimate the allowable deduction, 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). There must, however, be sufficient evidence in the record
to provide a basis upon which an estimate may be made and to
permit us to conclude that a deductible expense was incurred in
at least the amount allowed. Williams v. United States, 245 F.2d
559, 560 (5th Cir. 1957); Vanicek v. Commissioner, 85 T.C. 731,
742-743 (1985).
Furthermore, business expenses described in section 274 are
subject to rules of substantiation which supersede the doctrine
of Cohan v. Commissioner, supra. Sanford v. Commissioner, 50
T.C. 823, 827-828 (1968), affd. 412 F.2d 201 (2d Cir. 1969); sec.
1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.
6, 1985). Section 274 provides that no deduction shall be
1(...continued)
with respect to any relevant factual issue. The provisions of
the section are not invoked, however, where there is a failure by
the taxpayer to substantiate items, maintain required records, or
cooperate with reasonable requests by the Commissioner for
information. Sec. 7491(a)(2); Higbee v. Commissioner, 116 T.C.
438, 440-441 (2001). Here, neither party contends that sec. 7491
is applicable, and the record indicates that at least the
examination for 1996 began before July 22, 1998. Moreover,
petitioners in any event have not satisfied the aforementioned
prerequisites. Sec. 7491 thus has no bearing on our analysis in
this case.
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