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the burden of showing that the determinations are in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions
and credits are a matter of legislative grace, and the taxpayer
bears the burden of proving entitlement to any deduction or
credit claimed on a return. See INDOPCO, Inc. v. Commissioner,
503 U.S. 79 (1992); Wilson v. Commissioner, T.C. Memo. 2001-139.
Pursuant to section 7491(a), the burden of proof as to
factual matters shifts to the Commissioner under certain
circumstances. Petitioners have neither alleged that section
7491(a) applies nor established their compliance with the
requirements of section 7491(a)(2)(A) and (B) to substantiate
items, maintain records, and cooperate fully with respondent’s
reasonable requests. Petitioners therefore bear the burden of
proof.
Where a taxpayer establishes that he has incurred deductible
expenses but is unable to substantiate the exact amounts, the
Court can estimate the deductible amount if the taxpayer presents
sufficient evidence to establish a rational basis for making the
estimate. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d
Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985).2 In addition, we may permit a taxpayer to substantiate
2 Sec. 274(d) imposes additional substantiation
requirements for certain types of expenses. See sec.
1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.
6, 1985). The Cohan rule does not apply to expenses governed by
sec. 274(d). Sanford v. Commissioner, 50 T.C. 823, 827-828
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Last modified: November 10, 2007