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Under Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930),
inadequately substantiated expenses may be estimated by a court
where it is shown that a taxpayer is unquestionably entitled to
some deductions. In this case there are certain obvious expenses
that would have been incurred by petitioner in his activity. For
example, the costs of forming “duplicate” corporate entities,
filing deeds for transfer of real estate, telephone, etc.
Petitioner testified that the cost of filing a deed could range
from several dollars to thousands of dollars.
We have taken into consideration: (1) The fact that
petitioner’s records are incomplete; (2) some of petitioner’s
expenditures appear to be personal or nondeductible under section
274; (3) petitioner’s records; and (4) petitioner’s testimony,
and hold that petitioner is entitled to business deductions of
$15,123 and $5,492 for 1992 and 1993, respectively. Cohan v.
Commissioner, supra.
Whether Petitioner’s Income Is Subject to Self-Employment Tax
In the setting of this case, petitioner’s income was derived
through corporate entities, but, in effect, was earned in his
individual capacity. Section 1401 imposes a tax on an
individual’s net earnings from self-employment. “Net earnings
from self-employment” are defined as the gross income derived by
an individual from any trade or business carried on by such
individual, less deductions. There is no question about the fact
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