Kevin and Bridget Naughton - Page 19




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          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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