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Where a taxpayer has established that he has incurred a
trade or business expense, failure to prove the exact amount of
the otherwise deductible item may not be fatal. Generally,
unless prevented by section 274, the Court may estimate the
amount of an expense and allow the deduction to that extent. See
Finley v. Commissioner, 255 F.2d 128, 133 (10th Cir. 1958), affg.
27 T.C. 413 (1956); Cohan v. Commissioner, 39 F.2d 540, 543-544
(2d Cir. 1930). In order for the Court to estimate the amount of
an expense, however, the Court must have some basis upon which an
estimate may be made. See Vanicek v. Commissioner, 85 T.C. 731,
742-743 (1985). Without such a basis, an allowance would amount
to unguided largesse. See Williams v. United States, 245 F.2d
559, 560 (5th Cir. 1957).
Certain business deductions described in section 274 are
subject to strict rules of substantiation that supersede the
doctrine in Cohan v. Commissioner, supra. See sec. 1.274-5T(a),
Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Section 274(d) provides that no deduction shall be allowed with
respect to: (a) Any traveling expense, including meals and
lodging away from home; (b) any item related to an activity of a
type considered to be entertainment, amusement, or recreation; or
(c) the use of any “listed property”, as defined in section
280F(d)(4), unless the taxpayer substantiates certain elements.
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Last modified: March 27, 2008