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disallowance of petitioners’ claimed itemized deductions in favor
of the standard deduction.
2. Schedule C Expenses
A taxpayer generally may not deduct personal, living, and
family expenses. Sec. 262(a). However, section 162(a) allows a
taxpayer to deduct all ordinary and necessary business expenses
paid or incurred during the taxable year in carrying on any trade
or business. To be “necessary” an expense must be “appropriate
and helpful” to the taxpayer’s business. Welch v. Helvering, 290
U.S. at 113-114. To be “ordinary” the transaction that gives
rise to the expense must be of a common or frequent occurrence in
the type of business involved. Deputy v. du Pont, 308 U.S. 488,
495 (1940).
As previously stated, section 6001 and the regulations
promulgated thereunder require taxpayers to maintain records
sufficient to permit verification of income and expenses. If the
trial record provides sufficient evidence that the taxpayer has
incurred a deductible expense, but the taxpayer is unable to
adequately substantiate the precise amount of the deduction to
which he or she is otherwise entitled, the Court may estimate the
amount of the deductible expense, bearing heavily against the
taxpayer whose inexactitude in substantiating the amount of the
expense is of his own making, and allow the deduction to that
extent. Cohan v. Commissioner, supra.
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Last modified: May 25, 2011