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additional contribution (unsupported by any check or money order
receipt) in 1998 to be credible. We therefore find that he had a
one-third interest in the partnership throughout the year.
C. What were the partnership’s total losses?
Just like individuals, partnerships must keep records to
support claims of income, deductions, credits, etc. See sec.
1.6001-1(a), Income Tax Regs. Such records must show a
sufficient business connection for any deductions. Gorman v.
Commissioner, T.C. Memo. 1986-344. When it is evident that there
were business-related expenses but the taxpayer is unable to
produce records, we do have the authority to estimate, Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), but have to
have something on which to base our estimate. Williams v. United
States, 245 F.2d 559, 560 (5th Cir. 1957). Section 274(d)
further limits our discretion by adding requirements for
substantiating certain kinds of expenses--a burden we can’t lift
by relying on the Cohan rule. Sanford v. Commissioner, 50 T.C.
823, 827-828 (1968), affd. per curiam 412 F.2d 201 (2d Cir.
1969).
This is a real problem for the Chongs, because Yung himself
had no first-hand knowledge of the partnership’s income and
expenses. And Lok’s bookkeeping was very informal--he admitted
that he fed his family by withdrawing inventory from the store,
and he failed to produce a single receipt, deposit slip, or check
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