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Generally, the Court may allow for the deduction of a
claimed expense (other than those subjected to the strict
substantiation requirements of section 274) even where the
taxpayer is unable to fully substantiate it, provided the Court
has an evidentiary basis for doing so. Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85
T.C. 731, 742-743 (1985); sec. 1.274-5T(a), Temporary Income Tax
Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). In these instances,
the Court is permitted to approximate the allowable expense,
bearing heavily against the taxpayer whose inexactitude is of his
or her own making. Cohan v. Commissioner, supra at 544.
The taxpayer bears the burden of proving entitlement to any
claimed exemptions or deductions; the taxpayer’s burden includes
the burden of substantiation. Hradesky v. Commissioner, 65 T.C.
87, 89-90 (1975), affd. 540 F.2d 821 (5th Cir. 1976). Although
section 7491(a) may shift the burden of proof to the Commissioner
in specified circumstances, petitioner has not established that
he meets the requirements under section 7491(a)(1) and (2) for
such a shift.
II. Business Expense Deductions
Section 162(a) authorizes a deduction for “all the ordinary
and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business”. A trade or business
expense is ordinary for purposes of section 162 if it is normal
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Last modified: March 27, 2008