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basis for estimating the amount of the expense. Vanicek v.
Commissioner, 85 T.C. 731, 742-743 (1985); Keenan v.
Commissioner, T.C. Memo. 2006-45. Here, the record does not
provide a reasonable basis for estimating the portion of Steven’s
compensation, if any, that is deductible. We therefore do not
apply the Cohan rule.
On the basis of all of the facts and circumstances, we
conclude that the payments to Steven represent personal, living,
or family expenses. See sec. 262(a). The tasks that Steven
performed are mostly in the nature of routine family chores.
Petitioners predetermined the amount they would pay him and
failed to observe the formalities of the employee-employer
relationship, such as paying employment taxes, filing information
returns, and paying Steven promptly for the hours he worked.
Thus, petitioners cannot deduct the payments to Steven as wage
expense. Respondent’s determination is sustained.
3. Payments to Petitioners’ Daughters
Petitioners’ daughters were under 18 years old in 1998.
Petitioners therefore were not required to pay employment taxes
on their earnings or file Forms 940 and 941. See secs.
3121(b)(3)(A), 3306(c)(5). Petitioners were required, however,
to issue their daughters Forms W-2. See sec. 1.6041-2(a)(1),
Income Tax Regs. Petitioners’ failure to do so undercuts their
assertion that their daughters were bona fide employees of the
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