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Under the strict substantiation requirements of section 274,
the taxpayer must substantiate the amount, time, and business
purpose of the expenditures and must provide adequate records or
sufficient evidence to corroborate his or her own statement.8
Adequate records are defined as a diary, a log, or a similar
record, and documentary evidence that, in combination, are
sufficient to establish each element of each expenditure or use.
Sec. 1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg.
46017 (Nov. 6, 1985). To be adequate, a record must generally be
written and must be prepared at or near the time of the use or
expenditure. Sec. 1.274-5T(c)(2)(ii)(A), Temporary Income Tax
Regs., supra.
Moreover, the expenses subject to the strict substantiation
rules, such as entertainment expenses and passenger automobile
expenses, may not be estimated; i.e., section 274(d) overrides
the so-called Cohan doctrine. Sanford v. Commissioner, 50 T.C.
823, 827 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969);
sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014
(Nov. 6, 1985); sec. 1.280F-6T(b)(2), Temporary Income Tax Regs.,
49 Fed. Reg. 42713 (Oct. 24, 1984). For these expenses, only
strict substantiation will suffice.
8The taxpayer must substantiate by adequate records or by
sufficient evidence corroborating the taxpayer’s own statement:
(1) The amount of the expense; (2) the time and place of the
expense; (3) the business purpose of the expense; and (4) the
business relationship to the taxpayer of the persons involved in
the expense. Secs. 274(a), (d)(4); 280(F)(d)(4)(A)(i) and (ii).
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