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transaction that commonly or frequently occurs in the type of
business involved. Deputy v. DuPont, 308 U.S. 488, 495 (1940).
A “necessary” expense is one that is “appropriate and helpful” to
the taxpayer’s business. Welch v. Helvering, 290 U.S. at 113.
Expenses allowable under section 162 must be “directly connected
with or pertaining to the taxpayer’s trade or business”. Sec.
1.162-1(a), Income Tax Regs. Personal, living, and family
expenses are not deductible. Sec. 262(a).
Generally, if a claimed business expense is deductible, but
the taxpayer is unable to substantiate it fully, the Court is
permitted to make an approximation of an allowable amount (the
Cohan rule). Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d
Cir. 1930). The estimate, however, must have a reasonable
evidentiary basis. Vanicek v. Commissioner, 85 T.C. 731, 743
(1985).
Respondent asserts for the first time in his trial
memorandum that certain of petitioner’s Schedule C deductions are
also subject to the requirements of section 274. Section 274
supersedes the Cohan rule, see sec. 1.274-5T(a), Temporary Income
Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985), and imposes more
stringent substantiation requirements for travel, meals and
entertainment, gifts, and with respect to any listed property as
defined in section 280F(d)(4). Sec. 274(d). Listed property
includes any passenger automobile. Sec. 280F(d)(4)(A)(i).
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