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The unexpected loss of records beyond the taxpayer’s control
does not preclude a taxpayer from substantiating deductions by
alternate means. See Brown v. Commissioner, T.C. Memo. 1996-43
(“when a taxpayer’s records have been lost or destroyed through
circumstances beyond his control, he is entitled to substantiate
the deductions by reconstructing his expenditures through other
credible evidence”); 6 Administration, Internal Revenue Manual
(CCH), sec. 20.1.1.3.1.2.5, at 45,014 (Aug. 20, 1998).4 The most
4The Internal Revenue Manual contains the following
instructions for evaluating a taxpayer’s inability to obtain
records as it bears on the taxpayer’s claim that he had
reasonable cause for an underpayment:
(1) Explanations relating to the inability to
obtain the necessary records may constitute
reasonable cause in some instances, but may
not in others.
(2) Consider the facts and circumstances relevant
to each case and evaluate the request for
penalty relief.
(3) If the taxpayer was unable to obtain records
necessary to comply with a tax obligation,
the taxpayer may or may not be able to
establish reasonable cause. Reasonable cause
may be established if the taxpayer exercised
ordinary business care and prudence, but due
to circumstances beyond the taxpayer’s
control they were unable to comply.
(4) Information to consider when evaluating such
a request includes, but is not limited to an
explanation as to:
• Why the records were needed to
comply.
(continued...)
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