- 18 -
Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930); Vanicek
v. Commissioner, 85 T.C. 731, 742-743 (1985); Pratt v.
Commissioner, T.C. Memo. 2002-279. Courts will only estimate the
expenses when the record provides some basis for computation.
Cohan v. Commissioner, supra; Vanicek v. Commissioner, supra. In
estimating the taxpayer’s allowable deductions, the court bears
heavily against the taxpayer because the “inexactitude is of his
own making.” Cohan v. Commissioner, supra; Maciel v.
Commissioner, T.C. Memo. 2004-28.
Petitioners argue that Sam Kong Fashions is entitled to
additional deductions for employee compensation, thread expenses,
and depreciation that the corporation did not report on its 1994
and 1995 corporate income tax returns. Alternatively,
petitioners argue that Sam Kong Fashions’s gross income should be
determined by multiplying its gross receipts by the IRS’s
statistically estimated ratio of net income to business receipts
for the apparel and other textile products. Respondent argues
that petitioners have failed to provide adequate books and
records to substantiate the claimed unreported business expenses.
We find that Sam Kong Fashions has failed to provide
evidence necessary to substantiate the claimed additional
deductions. Petitioners submitted copies of bank statements and
checks drawn from the business checking account of Sam Kong
Fashions for the 1994 and 1995 taxable years. We did not find
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011