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respondent allowed for 1995-98. Petitioners also claim that,
under the mitigation provisions, sections 1311-1314, they may
deduct in 1995-96 depreciation to which they were entitled for
the South Oates building from 1990-96.
1. Petitioners’ Adjusted Basis in the South Oates Building
Petitioners paid $75,000 for the South Oates building in
1977. They sold it in 1996. On Form 1040 for 1996, petitioners
reported that their adjusted basis was $242,000.
Respondent contends that petitioners’ adjusted basis in the
South Oates building includes only (1) $75,000 for their purchase
of the building in 1977, and (2) $67,000 to add a second story to
it in 1978. Petitioners contend that, in addition to those
amounts, they spent (1) $35,000 to $37,000 to remodel the
building before they occupied it, (2) $35,000 to $40,000 to
complete the inside of the second story addition, and (3) $9,000
to pave the parking lot. Mr. King testified that he gave all the
receipts for these expenses to Mrs. King.
Petitioners testified that their records of the cost of the
building and its improvements were destroyed by the flood. When
a taxpayer establishes that he or she incurred a business expense
but did not prove the amount of the expense, the Court may
approximate the amount allowable, bearing heavily against the
taxpayer whose inexactitude is of his or her own making. Cohan
v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930), affg. in part
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