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substantiate this alleged expense. The first document dated
January 24, 1992, shows an unpaid principal balance on the
Pacific loan of $1.95 million. The second document dated
December 2, 1992, shows the amount of unpaid debt as
$2,052,385.23. Petitioners surmise that the difference in the
two amounts must constitute foreclosure expenses. We disagree.
Petitioners have not established to our satisfaction that the
difference represents expenses which offset the amount realized
on the foreclosure of 15 Isabella.
4. Construction Expenses
The vast majority of the expenses which petitioners claim
with respect to the 1992 NOL relate to the costs of construction
in the Atherton project. Petitioners have failed to produce any
records which directly substantiate any of those construction
expenses. Instead of producing direct evidence of those
expenses, petitioners rely on indirect evidence. They seek to
use the amounts of the various construction and other loans as a
proxy for estimating the amount of the construction expenses.
If the taxpayer fails to keep adequate records but the Court
is convinced that deductible expenditures were incurred, the
Court should 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, 544 (2d Cir.
1930); Shea v. Commissioner, 112 T.C. 183, 187 (1999); see also
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