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“hard costs” and that Mr. Assaad paid the soft costs from his own
funds. Petitioners claim that respondent allowed those expenses,
which were claimed in their 1992 return, in his examination of
the 1996 and 1997 returns.
The only item in the record regarding these expenses is the
Schedule C attached to the 1992 return that petitioners filed.
The fact that a return is signed under penalty of perjury is not
sufficient to substantiate deductions claimed on it. Wilkinson
v. Commissioner, 71 T.C. 633, 639 (1979). Petitioners provided
no direct or indirect evidence to substantiate their so-called
“soft costs” of construction. We have no rational basis for
estimating those expenses, verifying whether they were in fact
incurred, or determining their deductibility. Further,
petitioners have not adduced sufficient proof to show that those
costs were not paid with the proceeds of the construction loans.
Petitioners claim, but point to no evidence of record to
establish, that respondent allowed the expenses as part of his
examination of the 1996 and 1997 returns.
7. Conclusion
Because petitioners have failed to substantiate properly, or
otherwise present a reasonable evidentiary basis for estimating,
the expenses that were paid into the Atherton project in amounts
greater than the amounts that respondent allowed in the notice of
deficiency, we sustain respondent’s computation of the NOL for
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