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at the end of the fiscal years 1995 and 1996. The only records
explaining the amounts that were debited to the moving expense
account are lists showing a breakdown by vendor or other brief
description, but not identifying the nature of the item or the
dates that the credited amounts were expended.
Respondent has conceded that petitioner’s income should be
reduced by $1,800,354 of the misapplied $5 million subsidy.
Petitioner contends that it is entitled to deduct an additional
$2,007,640. Petitioner concedes that it is not entitled to
reduce its income by the balance of $1,192,006.
OPINION
In its opening brief on this issue, petitioner’s position is
concisely stated as follows:
Petitioner’s records are insufficient to determine
the extent to which these expenses should have resulted
in a reduction of otherwise allowable ordinary and
necessary business expenses as contrasted with the
reduction of otherwise allowable depreciation.
However, at a minimum, under the well-established Cohan
rule (Cohan v. Commissioner, 39 F.2d 540 (2d Cir.
1930)), petitioner is entitled to treat the entire
$2,007,640 as a capital expenditure depreciable over a
five-year time period and to reduce its taxable income
accordingly for the resulting additional depreciation
deductions.
Respondent replies:
* * * [Petitioner’s] assertion that * * * [it] is
at least entitled to capitalize the remaining amounts
in dispute without any documentation, is to simply
ignore the well known legal principle that deductions
are a matter of legislative grace, and the taxpayer
must clearly demonstrate entitlement to any deductions
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Last modified: November 10, 2007