-8-
II. Substantiation
We next address whether petitioner is entitled to the
$158,381 business bad debt deduction respondent disallowed in the
deficiency notice.
Deductions are a matter of legislative grace, and the
taxpayer has the burden of proving that he or she is entitled to
the claimed deductions. Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992). This includes
substantiating the amounts claimed as deductions by maintaining
the records necessary to establish that he or she is entitled to
the deduction. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87,
89-90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); sec.
1.6001-1(a), (e), Income Tax Regs. While we may estimate the
amount of allowable deductions where there is evidence that
deductible expenses were incurred, we must have some basis on
which an estimate may be made. Williams v. United States, 245
F.2d 559 (5th Cir. 1957); Cohan v. Commissioner, 39 F.2d 540 (2d
Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).
Without such a basis, any allowance would amount to unguided
largesse. Williams v. United States, supra at 560.
Petitioner failed to introduce evidence to substantiate the
amount of the bad debt deduction. While petitioner introduced
two notes made by Mr. Hauser, the notes are not in the amount of
the deduction, and petitioner did not explain how the $158,381
amount was calculated, nor how the $158,381 related to the
$200,000 of notes or the $420,000 of claimed indebtedness Brooks
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