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meals, and entertainment, as well as for listed property defined
by section 280F(d)(4), unless the taxpayer substantiates 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.
SCC argues that many of the expenses paid by Mr. Strong out
of account No. 893315300 were deductible business expenses of
SCC. For 1990, SCC’s financial statement provided to the revenue
agent during respondent’s audit of SCC did not include an
accountant’s compilation of expenses paid from account No.
893315300; instead, it estimated SCC’s costs using industry
standards and information available from closing statements. For
1991-94, respondent allowed SCC expenses based upon financial
statements including accountant’s compilations of expenses for
those years. Respondent allowed SCC expenses for 1990 on the
basis of the information in the financial statement, adjusted by
SCC’s average actual gross profits percentage taken from the
1991-94 accountant’s compilations.
Mr. Strong testified that he paid some of his personal
expenses, including child support, medical fees, clothing
purchases, restaurant charges, magazine subscriptions, and
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