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Disallowed Schedule C Deductions
1. General
Section 162(a) permits a deduction for the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Expenses that are personal in
nature are generally not allowed as deductions. Sec. 262(a). A
taxpayer is required to maintain records sufficient to establish
the amount of his income and deductions. Sec. 6001; sec. 1.6001-
1(a), (e), Income Tax Regs. A taxpayer must substantiate his
deductions by maintaining sufficient books and records to be
entitled to a deduction under section 162(a). When a taxpayer
establishes that he has incurred a deductible expense but is
unable to substantiate the exact amount, we are generally
permitted to estimate the deductible amount. Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We can
estimate the amount of the deductible expense only when the
taxpayer provides evidence sufficient to establish a rational
basis upon which the estimate can be made. Vanicek v.
Commissioner, 85 T.C. 731, 743 (1985).
Section 274(d) supersedes the general rule of Cohan v.
Commissioner, supra, and prohibits the Court from estimating the
taxpayer’s expenses with respect to certain items. Sanford v.
Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d
201 (2d Cir. 1969). Section 274(d) imposes strict substantiation
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Last modified: May 25, 2011