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1998 Schedule C, and it showed nearly $10,000 in income that was
almost entirely offset by expenses. We agree with Yung that it
“is just common sense” that he would incur expenses in earning an
income from his side business. And the Commissioner doesn’t
dispute many of Yung’s expenses--he disallowed only those
deductions that are subject to the limitations of section
274(d).3
To claim a deduction for any item described in section
274(d), a taxpayer must substantiate his deduction with “adequate
records,” such as a logbook or diary, or “sufficient evidence
corroborating the taxpayer’s own statement,” such as the
statement of the person(s) entertained. Sec. 274(d); sec. 1.274-
5T(c)(2)(i) and (3)(i), Temporary Income Tax Regs., 50 Fed. Red.
46017, 46020 (Nov. 6, 1985). These substantiation records must
explain: (A) the amount of the expense; (B) the time and place
the expense was incurred; (C) the business purpose of the
expense; and, where applicable, (D) the business relationship to
the taxpayer of the person(s) entertained. Sec. 274(d). Yung
didn’t meet these standards for any of the disallowed deductions-
-not even breaking down any of his categories of expense into
3 These include the deductions for repair and maintenance on
Yung’s cars: Section 1.274-5T(b)(6)(i)(A), Temporary Income Tax
Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985), specifically lists “the
cost of maintenance and repairs” as one of the “expenditure[s]
with respect to an item of listed property” covered by section
274(d)(4).
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