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B. Schedule C and Schedule E Deductions
1. General Principles
Deductions are strictly a matter of legislative grace, and a
taxpayer bears the burden of proving his or her entitlement to
the deductions claimed. Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).6 This includes the burden
of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90
(1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).
Section 6001 further requires taxpayers to maintain books
and records sufficient to substantiate the amounts of the
deductions claimed. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax
Regs. If a taxpayer is unable to fully substantiate the expenses
incurred, but there is evidence that deductible expenses were
incurred, the Court may nevertheless allow a deduction based upon
an approximation of expenses. Cohan v. Commissioner, 39 F.2d
540, 544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731,
742-743 (1985). The estimate, however, must have a reasonable
evidentiary basis, Vanicek v. Commissioner, supra, and there must
6 The burden of proof does not shift to respondent under
sec. 7491(a) because petitioner failed to establish that he
complied with the requirements of sec. 7491(a)(2)(A) and (B) to
substantiate items, maintain records, and fully cooperate with
respondent’s reasonable requests. We note that petitioner stated
at trial that he “did not come prepared to address those”
deductions. We find that statement remarkable considering that
the amount of the deductions claimed was a substantial part of
his revised Form 1040.
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