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determined that the claimed capital improvements of $232,400
should be disallowed for lack of substantiation.
The only substantiation of the $232,400 that has been
offered by petitioner in this proceeding is a handwritten list of
capital improvements and their purported cost (totaling $232,400)
that he gave his return preparer in November 1995. There are no
invoices or other supporting documentation for these claimed
expenditures. Instead, petitioner again asserts his contention
that his records were stolen and claims entitlement to an
estimate under the Cohan rule.
As with the claimed expenditures concerning the yachts,
there is no proof that expenditures of this nature were in fact
incurred, nor is there any evidence to support a reasonable
estimate of the amount of these expenditures. We accordingly
sustain respondent’s determination that $232,400 of petitioner’s
claimed basis be disallowed and petitioner’s gain on the sale be
increased in a corresponding amount.
Understatement of Income From Charter Business
Taxpayers must maintain records sufficient to establish the
amount of income required to be shown on a return. Sec. 1.6001-
1(a), Income Tax Regs. In the absence of adequate records, the
Commissioner may reconstruct the taxpayer’s income by any
reasonable method. Estate of Rau v. Commissioner, 301 F.2d 51
(9th Cir. 1962), affg. T.C. Memo. 1959-117; Schellenbarg v.
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