§274 — Disallowance of certain entertainment, etc., expenses

20, 2017), supplementing and overruling in part 147 T.C.

Additionally, the 50-percent allowance for meals unde r section 274(n) is superseded by a more g nerous 70 percent allowance for 2004 under section 274(n)( )(B) for individuals subject to "the hours of service limitations of the Department o f Transportation" .

The wrinkle here is that section 274 (d) expressly overruled Cohan for certain types of business deductions (including travel) by imposing strict substantiation requirements.

18, as modified and superseded by Rev .

Because the Cohan doctrine is superseded by section 274, which requires strict substantiation for meals, petitioner is not entitled to a Schedule C deduction for the $306 of meals.

Unlike travel expenses, accounting fees are not subject to the heightened substantiation requirements of section 274(d).

Travel and related expenses are subject to the strict substantiation requirements of section 274(d). Because these expenses are subject to the strict substantiation requirements, the Cohan doctrine does not apply.

With respect to petitioner's travel between California and New York, in particular, he provided no evidence to establish the business purposes for these - 14 - [*14] trips, and there is no way to distinguish whether any trip was made primarily for a business purpose or a personal one, e.g., to visit his son. Accordingly, because petitioner did not meet the strict substantiation requirements under section 274(d), we will sustain respondent's determination that his travel expenses are not deducti

mbursed employee business expenses for which he was entitled to reimbursement; (2) failed to maintain adequate substantiating records for expenses underlying the deductions claimed on his 2011 and 2013 returns, including expenses that are subject to the strict substantiation requirements of section 274; and (3) failed to report interest income and cancellation of indebtedness income. The accuracy-related penalty does not apply to any part ofan underpayment oftax ifit is shown that the taxpayer a

Prouse is inapposite for at least two reasons.

There's not a time when I'm not." We mostly agree with her that it was often difficult to distinguish her business and personal activities. But Lydia's proclivity to knit together these two sides ofher life--combined with her lack ofrecordkeeping--doomher under section 274.

The allocation contemplated by section 274(c)(1) and its corresponding - 11 - regulation requires that the taxpayer distinguish between time spent on business- related activities and time spent on activities notrelated to the taxpayer's trade or business. The provisions ofsection 274(c)(1) do not apply if(a) the travel outside the United States does not exceed one week, or (b) the portion ofthe time ofsuch travel which is not attributable to the pursuit ofthe taxpayer's trade or business is les

Contrary to the contention ofthe IRS, home internet expenses are not subject to the strict substantiation rules ofsection 274(d). See Bogue v. Commissioner, T.C. Memo. 2011-164, slip op. at 41 (strict substantiation does not apply to utility expenses, such as home internet service); Alami v.

Because "any tra eling expense" under section 162 is subject to the strict substantiation requirements of section 274(d), the Cohan doctrine does not apply, and we therefore will not estimate the amount of a y additional feductible commuting expenses petitioner may have incurred by transporting his tools." We reject petitioner's argument that the strict · substantiation rcquirements of sec.

Epps' automobile mileage deductions, petitioners again failed to demonstrate the business purpose of the automobile use or distinguish between Mr. Epps' business and personal use of the automobile. Petitioners' mileage log is not an adequate record within the meaning of section 274(d) and the regulations thereunder, and petitioners failed to provide other - 9 - corroborative evidence sufficient to satisfy the requirements of that section.

A passenger vehicle is listed property under section 280F(d) (4) and subject to strict substantiation under section 274(d). The rule in Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), does not apply to expenses related to listed property.

Nevertheless, petitioner made no attempt to distinguish between personal use and business use for any charges shown on . any of the statements, and we have insufficient information to formulate a reasonable allocation. See sec..1.274- 5T(b) (6) (i) (B), Temporary Income Tax Regs., supra.

- 24 - percent limitation on meals and entertainment expenses under section 274(n) does not apply .

And, unlike with the car expenses, the Commissioner didn't I give anything away. We agree with the Commissioner. 3. Travel Claimed RA's NOD P claimed P claimed R argued on return report adjust. at trial in brief at trial $6,418 0 ($6,418) $8,959 $5,494 0 Pace traveled extensively in 2001, spending thousands of dollars on airfare, hotels, and incidentals. But he has failed to adequately substantiate such expenses under section 274.

7491(a) does not apply here.

These depreciation deductions related to petitioner's use ofhis ¹#We need not decide whether we may estimate petitioner's ski pass expenses under the Cohan doctrine or whetherthe expenses are subject to the heightened substantiation requirements ofsec.

We need not decide whether Rehman's taxi expenses should be classified as listed property expenses rather than travel expenses because the same substantiation requirements apply in either case.

33Because we conclude the firearm purchake was not an ordinary and necessary business expense ofASC, we need not decide whether sec.

s, and because it does not “refer to the 90-day deadline or to section 6213(a)”, then the deadline of section 6213(a) is not jurisdictional because “[t]he remaining sentences in section 6213(a) do nothing to ‘connect’ this 90-day filing period to the jurisdictional grant contained in section 6214.” We do not agree.

We disagree with respondent for the reasons stated below.

Commissioner, supra, was incorrectly decided.14 Respondent argues that Rev.

- 10 - when any cost exceeds that of a normal counterpart, and that cost is solely for the mitigation or alleviation of a disability and one that provides functionality to the disabled, this above normal cost is deductible as a medical expense confined to the limitation that its primary function is not that of normal and ordinary to and from work travel when the principles of this type of deductibility cost are applied in this area.

Moreover, the Court may not estimate expenses under Cohan in situations where section 274 requires specific substantiation, such as with respect to travel expenses.

Section 104(b)(2)(D) and (b)(4) therefore provides no basis for the exclusion she claims; and we hold that the retirement distributions Ms.

The Court may not estimate expenses under Cohan in situations where section 274 requires specific substantiation.

Accordingly, we hold petitioners are not entitled to a deduction for Mrs.

We hold that the Monroes are entitled to the advertising expense deductions.

The Commissioner seems to have been more lenient, because the expenses that he allowed during audit appear to have been the approximate amounts that the Browns could prove they spent on lease payments--at least for 2007 and 2008--without the additional proofthat section 274 requires.

But even ifwe assume it was contemporaneous, it is devoid ofthe detail needed for substantiation ofthe specific facts that section 274 requires.

In sum, we hold that for 2011 petitioners may deduct $7,427 ($667 plus $6,760) ofother expenses.

The records that section 274 requires may be any document that can establish any ofthese three elements but are usually an account book, a diary, a log, a statement ofexpenses, or trip sheets.

Section 274 provides heightened substantiation requirements for travel expenses (including meals and lodging while away from home), entertainment, and any listed property under section 280F(d)(4).

Petitioners substantiated, to respondent's satisfaction, the amount, time, place, and business purpose ofthe event pursuant to section 274(d), and that the expense was at least $3,020.

The Court may not estimate expenses under Cohan in situations where section 274 requires specific substantiation.

However, certain business expenses, including lodging or other traveling expenses and entertainment expenses, are subject to stricter substantiation requirements pursuant to section 274(d).

We hold that petitioner has not substantiated his entitlement to meals and entertainment expense deductions as required by section 274(d).

Even for expenses that do not have to be substantiated pursuant to section 274, there remains the general requirement, arising from the taxpayer's bearing the burden ofproof, that he marshal any secondary evidence reasonably available when records have been lost.

Section 274 requires stricter substantiation for travel, meals, and certain listed property such as passenger automobiles.

Section 274 requires stricter substantiation for travel, meals, and certain listed property such as passenger automobiles.

1165, 1171-1172 (1983) (applying section 274(d)(1)) ("Eacil ofthe * * * elements must be proved for eacil separate expenditure."); Wakefield v.

-5- [*5] For deductions to which section 274 applies, a taxpayermust substantiate certain elements ofthe deductible activity or use through either adequate records or sufficient evidence corroborating the taxpayer's own statement.

4(...continued) To the extent that he did, he failed to prove that he was entitled to deduct the expense, and we hold that he is not entitled to deduct it.

Business Relatedness Section 162(a) allows a deduction for expenses paid or incurred "in carrying on * * * [the taxpayer's] trade or business." For "listed property," including airplanes, section 274 requires that the taxpayer substantiate, by adequate records or sufficient evidence corroborating his own statement, the amount ofeach business use as well as the date ofthe expenditure or use and "[t]he business purpose for * * * [the] expenditure or use." Sec.

Section 274 requires stricter substantiation for travel, meals, and certain listed property.

Business Relatedness Section 162(a) allows a deduction for expenses paid or incurred "in carrying on * * * [the taxpayer's] trade or business." For "listed property," including airplanes, section 274 requires that the taxpayer substantiate, by adequate records or sufficient evidence corroborating his own statement, the amount ofeach business use as well as the date ofthe expenditure or use and "[t]he business purpose for * * * [the] expenditure or use." Sec.

Section 274 requires stricter substantiation for travel, meals, and certain listed property.

We hold that Crawford is not entitled to any deductions for car-and-truck expenses for 2009.

Section 274 requires stricter substantiation for travel, meals, and certain listed property.

Thus, we hold that Johnson has not met his burden to show that he is entitled to any deduction for meals-and-entertainmentexpenses.

For deductions to which section 274 applies, a taxpayer must substantiate certain elements ofthe deductible activity or use through either adequate records or sufficient evidence corroborating the taxpayer's own statement.

We hold that petitioner's commuting expenses were nondeductible.

Section 274 requires stricter substantiation for travel, meals, and certain listed property.

Thus, we hold that any such expenses were nondeductible personal expenses.

On the record before us, we hold that petitioner is not entitled to any deduction for his computer purchase because he failed to meet the requirements set forth in section 274(d).

Accordingly, we hold that petitioner is not entitled to more than the $39 respondent allowed with respect to the $3,640 deduction claimed on his Schedule C involving the photography activity.

Sectîon 274 provides that no deduction shall be allowed for, among other things, traveling expenses, entertainmentexpenses, and meal expenses "unless the taxpayer' substantiates by adequate records or by sufficient evidence corroboratingthe taxpayer's own statement": (1) the amount ofthe expenditure or use; (2) the tim

While the checks make clear that H & M spent - 39 - [*39] these amounts, H & M has not specified the fees' business purpose as section 274 requires, so we find for the Commissioner on this issue.

For deductions to which se tion 274 applies, a taxpayermust substantiate certain elements ofthe deductible activity or use through either adequate records or sufficient evidence corroborating the taxpayer's own statement.

- 6 - We hold for respondent.

- 17 - [*17] The Cohan rule does not apply to car and truck expenses pursuant to section 274(d).

At most, petitioners substantiated $2,445.37 in mileage expenses and $837.22 in travel expenses.7 For the reasons set forth below, we hold the issue ofwhether 6Sec.

In cases where section 274 requires substantiation of an expense, the Court may not estimate the expense under Cohan.

Section 274 requires stricter substantiation for travel, meals, and certain listed property.

Truck Expenses Pursuant to section 274(d), truck expenses otherwise deductible as business expenses will be disallowed in full unless the taxpayer satisfies strict substantiation requirements.

Section 274 requires strict substantiation for expenses relating to any section 280F(d) (4) listed property.

With respect to the January trip to Los Angeles, we must determine whether petitioner provided adequate substantiation for these travel expenses pursuant to section 274 (d).

To substantiate a deducti n pursuant to section 274(d), the taxpayer must, through adequate records or sufficient evidence corroborating the taxpayer's own statement, show (1) the amount of the expense; (2) the time and place of the expense; (3) the business purpose of the expens ; and (4) the business relationship of the taxpayer t the persons ente

Most of the entries on the planners do not state for whom petitioner bought meals or other information required pursuant to section 274(d).

Section 274 requires strict substantiation for any traveling expense under section 162.

However, except for expenses subject to heightened scrutiny pursuant to section 274, if a taxpayer establishes that he paid a deductible expense l>ut is unable to substantiate the precise amount, we may, after "bearing heavily * * * upon the taxpayer whose inexactitude is of his own making", estimate the amount.

Vehicle Expenses Pursuant to section 274(d), any deduction claimed with respect to the use of a passenger automobile will be disallowed unless the taxpayer substantiates specified elements of the use by adequate records or by sufficient evidence corroborating the taxpayer's own statement.

'Because we hold that petitioner did not meet the strict substantiation requirements of sec.

8 Because we hold that petitioner failed to satisfy the strict substantiation requirements of sec .

Thus, we hold that Madsen may deduct only 75- percent of the special daily rates for transportation workers on all of her first and last days of travel away from home in 2004 and 2005.

Section 274 requires strict substantiation for any traveling expense under section 162 and .listed property such as cellular telephones .

The deductibility of meals and entertainment -expenses is also conditioned on their being substantiated by adequate records or by other sufficient evidence corroborating the claimed expenses | pursuant to section 274(d).

Section 274 requires strict substantiation for listed property such as cellular telephones and computers or peripheral equipinent.

Accordingly, we hold that petitioner is not entitled to deduct these expenses .

Pursuant to section 274(cid:127)(d), automobile expenses otherwise deductible as business expenses will be disallowed in full unless the taxpayer satisfies strict substantiation requirements .

Accordingly, we hold that petitioner is not entitled to deduct these expenses .

Pursuant to section 274 (d) , no deduction or credit is allowed with respect to any listed property, within the meaning of section 280F(d) (4) unless the taxpayer substantiates by adequate records or sufficient evidence corroborating the taxpayer's own statement: (1) The amount of 'the expense; (2) the time and place of t

The deductibility of meals and entertainment -expenses is also conditioned on their being substantiated by adequate records or by other sufficient evidence corroborating the claimed expenses | pursuant to section 274(d).

ot submit any documents or other evidence, - 6 - except for his testimony, to substantiate his claimed deduction for car and truck expenses, nor did he supplement the record following trial 5 Because petitioner failed to present sufficient evidence to satisfy the strict substantiation requirements pursuant to section 274(d), he is not entitled to deduct car and truck expenses, .

Section 274 requires more stringent substantiation for travel, meals, and listed property, defined under section 280F(d)(4) to include passenger automobiles, computers or peripheral equipment., and cellular telephones .

Section 274 requires stricter substantiation for travel, meals, entertainment, and listed property such as a passenger automobile .

Vehicle Expenses as Employee Business Expenses Pursuant to section 274(d), the Court cannot estimate a taxpayer' s expenses with respect to certain items .

Section 274 requires that expense be recorded at or near the time when the expense is incurred .

Pursuant to section 274(d)(4), petitioner must substantiate the amount of total use - 7 - and the amount of business use, and only the portion of the expense that petitioner has substantiated to be ordinary and necessary business expense is deductible.

Section 274 requires stricter substantiation for travel , meals, and listed property such as computers .

Accordingly , and on the basis of the foregoing, we hold that petitioner is not entitled to deduct any cellular phone expenses under the listing of " instrument/equipment" for taxable year 2002 .

Pursuant to section 274(d), a taxpayer must substantiate a claimed automobile expense with adequate records or sufficient evidence corroborating his own testimony as to : (1) The amount of the expenditure ; (2) the mileage for each business use of the .automobile and the total mileage for all use of the automobile during

Therefore, we hold that petitioners may deduct meal and incidental expenses of $445 in 2001, $240 in 2002, and $180 in 2003 .

For deductions to which section 274 applies, taxpayers must substantiate certain elements of the deductible activity or use through either adequate records or sufficient evidence corroborating the taxpayer's own statement .

Section 274 provides that expenses paid or incurred with respect to travel and certain listed property are deductible only if the taxpayer meets the stringent substantiation requirements of section 274(d) .

Consequently , we hold that petitioners are entitled to deduct the cost of using their truck on those occasions .

Section 274 requires that expenses be recorded at or near the time when the expense is incurred.

Section 274 requires that expenses be recorded at or near the time when the expense is incurred.

Section 274 requires that expenses be recorded at or near the time when the expense is incurred.

We hold they do not.

Section 274 requires that expenses be recorded at or near the time when the expense is incurred.

Travel and Lodging/Meals and Entertainment Expenses The deduction of travel expenses away from home, including meals and lodging, under section 162(a)(2), is also conditioned on such expenses' being substantiated by adequate records or by other sufficient evidence corroborating the claimed expenses pursuant to section 274(d).

Pursuant to section 274(n), only 50 percent of meal and entertainment expenses is allowed as a deduction.

Section 274 provides more stringent substantiation requirements for deductions with respect to any passenger automobile under section 280F(d)(4)(A)(i).

Section 274 requires, in relevant part, that the taxpayer substantiate by either adequate records or sufficient corroborating evidence the following items: (1) The amount of the claimed expense; (2) the time and place of the use of the property; and (3) the business purpose of the expense.

As stated above, section 274 requires strict substantiation for deductions claimed for transportation in a passenger car.

Section 274 requires that expenses be recorded at or near the time when the expense is incurred.

on; rather, the employer is required to deduct its costs incurred in providing the benefit to the employee. Sec. 1.162-25T, Temporary Income Tax Regs., supra. Some deductions previously allowable under section 162 were disallowed by the enactment of section 274. Section 274(a)(1)(A) generally provides for the disallowance of deductions involving an entertainment, amusement, or recreation activity. Section 274(a)(1)(B) disallows the deduction of otherwise allowable expenses incurred with respect

on; rather, the employer is required to deduct its costs incurred in providing the benefit to the employee. Sec. 1.162-25T, Temporary Income Tax Regs., supra. Some deductions previously allowable under section 162 were disallowed by the enactment of section 274. Section 274(a)(1)(A) generally provides for the disallowance of deductions involving an entertainment, amusement, or recreation activity. Section 274(a)(1) (B) disallows the deduction of otherwise allowable expenses incurred with respect

In addition to being subject to the requirements of section 162 and the provisions under section 274 already discussed, a taxpayer's deductions for certain travel expenditures are subject to other provisions of section 274.

), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). Section 274(d) and the regulations thereunder vest the Secretary with the authority to promulgate regulations that prescribe alternative methods for substantiating expenses covered by section 274. See sec. 1.274-5T(j), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). Pursuant to this authority, the Secretary issued Rev. Proc. 93-50, 1993-2 C.B. 586, providing rules under which the amount of ordinary and necessary bus

siness manager at two automobile dealerships. P claimed various employee business expense deductions, primarily for business meals. 1. Held: P is not entitled to deductions for business meals expenses because he has not satisfied the requirements of sec. 274, I.R.C. 1986. 2. Held, further, deductions are not allowable for P’s otherwise deductible other employee business expenses because they do not in the aggregate exceed the 2-percent floor on miscellaneous itemized deductions. Sec. 67, I.R.C.

Contrary to what petitioner appears to believe, these expenses are subject to the strict substantiation rules of section 274(d) and thus they cannot be estimated.14 In support of these expenses, petitioner kept a daily mileage log on which he handwrote the city of destination, the name of the destination, the business purpose, and the miles he drove to each destination. Despite petitioner’s best efforts to maintain a contemporaneous mileage log, we find there are critical inaccuracies with his l

Nov. 6, 1985). For those expenses (e.g., expenses relating to travel, meals and entertainment, gifts, or other “listed property” as defined in section 280F(d)(4)), a taxpayer must meet the strict substantiation requirements set out in - 15 - [*15] section 274. To satisfy the strict substantiation requirements, a taxpayer must introduce sufficient evidence to corroborate (1) the amount of the expense or other item; (2) the time and place of travel, entertainment, or use of the property; (3) the b

For 2013, section 280F(d)(4)(A)(iv) subjected computers to the special substantiation requirements ofsection 274 as "listed property".4 Petitioners offer nothing (and have not even addressed the issue on brief) to satisfy the substantiation requirements for listed propertyby showing business purpose and business use for the two computers. See sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). We, therefore, allow petitioners no deduction for the cost ofeither com

ense, bearing heavily ifappropriate against the taxpayerwhose inexactitude is ofher own making. Cohan v. Commissioner, 39 F.2d at 544. The Cohan rule does not apply, however, to deductions that are subject to the strict substantiation requirements ofsection 274. Sec. 1.274-5T(a), Temporary Income Tax Regs., supra. Section 274(d) applies to: (1) any traveling expense, including meals and lodging away from home; (2) entertainment, amusement, and recreational expenses; (3) any expense for gifts; or

1.274-5T(b)(2), (c) (2010). Cellular telephone expenses are subject to strict substantiation requirements. Secs. 274(d)(4), 280F(d)(4)(A)(v).4 To deduct cell phone expenses a taxpayer must substantiate the amount ofbusiness use and the total use for the cell phone. See Trupp v. Commissioner, T.C. Memo. 2012-108, slip op. at 14; 26 C.F.R. sec. 274-5T(b)(6)(i)(B) (2010). The expenses ofinternet service are not subject to strict substantiation requirements. See Bogue v. Commissioner, T.C. Memo. 201

Section 274 expenses Some deductions demand more substantiation than others. See secs. 274, 280F. These include travel, meals and entertainment, and certain forms of"listed property." "Listed property" includes any passenger automobile. Sec. 280F(d)(4)(A). To deduct items in these categories, a taxpayermust show that the item claimed is directly re

Petitioner has failed to satisfy the strict substantiation requirements ofsection 274. Petitioner contends that in lieu ofsubstantiating actual costs, he is entitled to use the Federal per diem allowance to calculate his lodging, meals, and incidental expense deductions associated with his Forest and Dynalectricjobs. In support ofhis contention, petitioner submitted a handwritten sheet ofpaper, dated December 27, 2009, that detailed his purported per diem calculations. Petitioner claimed travel

274(d)(4), 280F(d)(4)(A) i) and (ii). Accordingly, with certain exceptions (none ofwhich petitionerhas shown he meets), taxpayer's claiming deductions for car and truck expenses must satisfy the strict substantiation requirements of section 274. Section 1.274-5A(c)(5), neome Tax Regs., exempts taxpayers from the strict substantiation requirements when there is a loss ofrecords beyond their control. Although petitioner testified that some ofhis records were destroyed as a result ofwater damage to

No deduction is allowed under section 162 for travel expenses unless the taxpayer satisfies the substantiation requirements of section 274(d). Sec. 274(d) (1); sec. 1.274-5T(b) (1), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).' To do so, the taxpayer must substantiate the amount of the expense and the time, place, and business purpose of the travel. Sec. 274 (d) .5 The substantiation must take the form of either (i) adequate records or (ii) other sufficient evidence corroborati

Warmoth's general testimony falls short of that required to satisfy the strict substantiation requirements of section - 60 - 274(d). We conclude that the record does not satisfy the adequate records requirement of section 274(d) and is insufficient to allow us to conclude that the boat was used for business purposes. Petitioner contends, however, that the record shows that the boat was used at least 50 percent for business purposes and that the incidental use exception of section 1.274-2(e) (4)

- 18 - In order to deduct travel expenses, taxpayers must not only satisfy the general requirements of section 162; they must also satisfy the strict substantiation requirements of section 274(d). No deduction is allowed for expenses incurred for travel away from the taxpayer's home (including meals and lodging) unless the taxpayer substantiates, by adequate records or by sufficient evidence corroborating the taxpayer's own statement, each of the following elements: (1) The amount of each separa

Section 274 does not define the term "facility", but according to the legislative history, the term includes any item of real or personal property which is owned, rented, xn: used by a taxpayer in conjunction or connection with an entertainment - facility, such as airplanes and yachts. See H. Conf. Rept. 95- 1800, at 249 (1978), 1978-3 C.B. (Vol. 1

- 24 - does not meet the substantiation requirements of section 274 because it does not show mileage traveled, route taken, or business purpose of these expenses.

- 72 - Per Diem Letters Petitioner argues that TLC's trucking company clients "were well aware of the total amount of per diem they paid and their responsibility to limit their deduction under Section 274(n)" because TLC sent each trucking company client a per diem letter for each of the taxable years at issue. Respondent counters that TLC did not inform each trucking company client of the section 274(n)(1) limitation prior to such trucking company client's entering into the exclusive lease agre

ut this paragraph shall apply— (A) where the services are performed for an employer, only if the employer has not treated such expenses in the manner provided in paragraph (2) [of section 274(e)], or (B) where the services are performed for a person other than an employer, only if the taxpayer accounts (to the extent provided by subsection (d) [of section 274]) to such person.

However, section 274 supersedes the doctrine of Cohan v.

Respondent agrees that petitioner correctly applied and calculated the imputed income and associated deduction figures pursuant to - 4 - sections 61 and 162, leaving the applicability of section 274 as the only matter in controversy. Respondent determined income tax deficiencies of $341,631 and $119,558 for petitioner’s 1992 and 1993 tax years, respectively. The deficiency determinations were based on adjustments to deductions involving airplane expenses, net operating loss, environmental tax,

The parties’ controversy raises the question of whether and how section 274 applies for petitioner’s 1992 and 1993 taxable years.

The expense log does not meet the substantiation requirements of section 274 because it does not show the date, place, or business purpose of these expenses or business uses.

Respondent's explanations in the statutory notice of deficiency state that the amounts were disallowed because petitioner did not establish that any amounts over the allowed amounts were ordinary and necessary business expenses, and that the section 274 substantiation requirements had not been met.

Failure to prove the exact amount of an otherwise deductible item is not fatal, because generally, unless precluded by section 274, we may estimate the amount of such an expense and allow the deduction to that extent.

OPINION LARO, Judge: These consolidated cases are before the Court on cross-motions for partial summary judgment.1 Respondent moves for partial summary judgment in her favor, arguing that section 274(n)(1) limits petitioners’ deductions for the cost of “free” food and beverages that they provided to their employees on petitioners’ business premises.2 Petitioners object to respondent’s motion, arguing that a genuine issue of fact exists as to the applicability of an exception to section 274(n)(1)

Neither the text of section 274 nor its legislative history persuades us that the de minimis fringe benefit exception applies only to cafeterias that charge a fee for their meals.

Section 274 Expenses (Automobile and Travel) In addition to satisfying the criteria for deductibility under section 162, certain categories of expenses must also satisfy the strict substantiation requirements of section 274(d) in order for a deduction to be allowed. The expenses to which section 274(d) applies include, among other things, listed pr

g expenses and expenses paid or incurred with respect to listed property, i.e., a passenger automobile, computer or peripheral equipment, and cellular telephones, are deductible only if the taxpayer meets the stringent substantiation requirements of section 274. See sec. 274(d); sec. 280F(d)(4); Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d Cir. 1969); sec. 1.280F- 6T(b), Temporary Income Tax Regs., 49 Fed. Reg. 42713 (Oct. 24, 2 We need not decide whether the burden o

oject gave rise to deductible expenses or expenses that increased basis. The testimony of Richard X. Waters, vice president of Pacific, Allan Butler, Pacific’s jobsite inspector, and Jimmy Dean Black, an employee of First National, indicates 17Under sec. 274, certain business expenses are subject to more stringent substantiation rules. Those business expenses include traveling expenses, entertainment expenses, meal expenses, and expenses with respect to certain listed property such as passenger

Section 274 generally disallows certain entertainment, gift, and travel expenses. In the case of allowances paid to cover expenses incurred during travel, section 274 applies only if the amount is otherwise deductible as a “travel” expense. Thus, section 1.274-1, Income Tax Regs., provides that “If a deduction is claimed for an expenditure for ente

But section 274 supersedes the Cohan rule for certain expenses, which may not be estimated and are instead subject to strict substantiation requirements. See § 274(d); Sanford v. Commissioner, 50 T.C. 823, 827–28 (1968), aff’d per curiam, 412 F.2d 201 (2d Cir. 1969); Temp. Treas. Reg. § 1.274-5T(a). The strict substantiation requirements apply to trave

consti- tuted a “trade or business” with the meaning of section 162. However, he contends that petitioner failed to substantiate her reported COGS and her reported expenses, several of which were subject to the strict substantiation requirements of section 274. 9 [*9] A. COGS COGS is an offset subtracted from gross receipts in determining gross income. Treas. Reg. § 1.61-3(a). Technically speaking, COGS is not a “deduction.” See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 661 (1987). It is t

The Court may not estimate expenses under Cohan in situations where section 274 imposes heightened substantiation requirements.

Given the record in its entirety, we find that petitioners have substantiated HPPO’s COGS and business expenses as reported on HPPO’s returns for each year at issue, except for meal and entertainment expenses of $1,473, $1,078, $1,171, and $503 for 2013, 2014, 2015, and 2016, respectively, that are subject to the section 274 heightened substantiation requirements.

Certain expenses specified in section 274 are subject to strict substantiation rules.

However, the expenses at issue are specified in section 274 and are subject to strict substantiation rules thereunder that supersede the Cohan rule.

the strict substantiation requirements of section 274(d). Petitioner may well have incurred some travel expenses in con- ducting his consulting business. But we are not authorized to estimate expenses under the Cohan rule for deductions governed by section 274. And even if we were authorized to estimate vehicle expenses, we would need a reliable basis for doing so, which petitioner has not supplied. 2. “Other Expenses” For his Schedule C1 business, petitioner claimed deductions for “other expen

The law also has enhanced substantiation requirements under section 274 for some expenses.

Certain expenses, such as travel, specified in section 274 are subject to strict substantiation rules.

e sec. 1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). “Section 274(d) contemplates that a taxpayer will maintain and produce such substantiation as will constitute proof of each expenditure or use referred to in section 274.” Id. para. (c)(1), 50 Fed. Reg. 46017. “A contemporaneous log is not required,” but “corroborative evidence required to support a statement not made at or near the time of the expenditure or use must have a high degree of probative value

Section 274 imposes strict substantiation requirements superseding the Cohan rule for certain expenses, including those for travel. See sec. 274(d); see - 12 - [*12] also Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5(c)(2)(iii), Income Tax Regs.; sec. 1.274-5T(a), Temporary Income

However, section 274 supersedes the Cohan rule for certain expenses, including those for travel and meals and entertainment, by imposing strict substantiation requirements.

- 7 - Business expenses specified in section 274 are subject to rules of substantiation that supersede the Cohan rule.

Certain expenses specified in section 274 are subject to strict substantiation rules.

Documents submitted to substantiate the deductions subject to section 274 are deficient in one respect or another.

Petitioners' testimony is unsupported by the type ofsubstantiation required by section 274 and is insufficient for us to allow deductions in any amount.

- 11 - Business expenses specified in section 274 are subject to rules of substantiation that supersede the Cohan test.

However, section 274 overrides the Cohan rule with regard to certain expenses, including travel and certain listed property,6 which ifotherwise allowable are subject to strict substantiation rules.

wo vehicles used by AAPS. Petitioners produced no mileage logs, receipts, or other substantiation for these ex- penses and did not demonstrate that the vehicles listed on their return were ex- cepted from the heightened substantiation requirements ofsection 274. See secs. - 14 - [*14] 274(d)(4), 280F(d)(5)(B). Accordingly, they are not entitled to any deduction for car and truck expenses. C. Contract Labor Expenses Petitioners reported on their 2008 amended Schedule C contract labor ex- penses o

- 7 - [*7] However, section 274 overrides the Cohan rule with regard to certain expenses.

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274, such as "listed property" (including passenger vehicle) expenses.2 Secs.

Expenses Under Section 274 Section 274(d) supersedes the Cohan rule by imposing strict substantiation requirements for certain expenses such as vehicle expenses, travel expenses, and meals and entertainment expenses.

Certain expenses specified in section 274 are subject to strict substantiation rules.

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274; to wit, traveling expenses (including meals and lodging while away from home), entertainment expenses, gifts, and "listed property" (including passenger vehicle) expenses.8 Secs.

Certain expenses specified in section 274, such as vehicle expenses, travel expenses, and expenses for meals and entertainment, are subject to strict substantiation rules.

Under section 274, certain - 35 - [*35] expenses carry strict substantiation requirements. This means that a taxpayerhas to show the amount, time, place, and business purpose ofeach expense, usually in the form ofa contemporaneous account book, diary, or log. Sec. 1.274-5T(b) and (c)(1), (2), and (3), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

6, 1985) (flush language) (noting that section 274 supersedes the Cohan rule).

Certain expenses specified in section 274 are subject to strict substantiation rules.

6, 1985) (flush language) (noting that section 274 supersedes the Cohan rule).

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274, such as travel (including meals and lodging), entertainment, and "listed property" (including passenger automobile) expenses.

The strict substantiation requirements ofsection 274 apply to "any item with respect to an activity which is ofa type generally considered to constitute entertainment".

According to respondent, petitioner has not established that the meals and entertainment expenses satisfy the strict substantiation requirements ofsection 274 or shown that they were ordinary and necessary to his consulting business.

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274, such as travel (including - 10 - [*10] meals and lodging), entertainment, and "listed property" (including passenger automobile and computer) expenses.

aff'd without published opinion, 720 F.2d 664 (3d Cir. 1983). Qualified entities under section 170 are generally organizations that qualify for an exemption under section 501(c)(3). See, e.g., 5 Even ifwe had a reasonable basis for making estimates, sec. 274 would preclude us from allowing deductions the LLC claimed for travel, meal, entertainment, automobile, and fuel expenses. See secs. 274(d), 280F(d)(4); sec. 1.274-2(b)(1)(i), Income Tax Regs.; sec. 1.274-5T(a), Temporary Income Tax Regs., 5

To deduct expenses related to travel, meals and entertainment, gifts, or listed property, the taxpayer must "substantiate[] by adequate records or by sufficient evidence corroborating the taxpayer's own statement": (1) the amount ofthe expense (i.e., mileage); (2) the time and place ofthe expense; (3) the business purpose ofthe expense; a

- 10 - [*10] Certain expenses specified in section 274 are subject to strict substantiation rules.

Certain expenses specified in section 274 are subject to strict substantiation rules that supersede the Cohan rule.

Certain expenses specified in - 8 - section 274, such as vehicle expenses, are subject to strict substantiation rules.

pport an estimate and only ifwe are convinced from the record that he incurred them. Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Blythe v. Commissioner, T.C. Memo. 1999-11. Some expenses have enhanced substantiation requirements under section 274. These include expenses for travel and meals and entertainment. R For these expenses, a taxpayermust show the amount, the time, the place, and the business purpose ofeach expense. Sec. 1.274-5T(b), (c)(1), Temporary Income Tax Regs. A tax

- 11 - [*11] Furthermore, certain business expenses described in section 274 are subject to rules ofsubstantiation that supersede the Cohan rule.

However, section 274 overrides the Cohan rule with regard to certain expenses.

In addition to the general business expense deduction rule ofsection 162, section 167(a) authorizes "as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) --(l) ofproperty used in the trade or business, or (2) ofproperty held for the production ofincome

Moreover, turning to section 274, several categories ofpetitioner's expenses, including, but not limited to, his mobile telephone, travel, gifts, and meal expenses, are subject to heightened substantiation requirements.

With the exception ofexpenses incurred for meals at restaurants and food and provisions for individuals on the Kline charters to share, we find that petitioners' records, coupled with the testimony given at trial, satisfy the heightened substantiation requirements ofsection 274, and petitioners may deduct airfare to and from the Kline charters, U.S.

To meet the adequate records requirement for the expenses enumerated in section 274, a taxpayer must maintain an account book, a diary, a log, a statement ofexpense, trip sheets, or a similar record and documentary evidence which, in combination, would be sufficient to establish each element ofexpenditure or use.

Moreover, turning to section 274, several categories ofpetitioner's expenses, including, but not limited to, his mobile telephone, travel, gifts, and meal expenses, are subject to heightened substantiation requirements.

Certain expenses specified in section 274, such as vehicle expenses and .

However, section 274 overrides the Cohan rule with regard to certain expenses.

With the exception ofexpenses incurred for meals at restaurants and food and provisions for individuals on the Kline charters to share, we find that petitioners' records, coupled with the testimony given at trial, satisfy the heightened substantiation requirements ofsection 274, and petitioners may deduct airfare to and from the Kline charters, U.S.

The Court is not permittedto use the Cohan rule to estimate certain expenses under section 274, and the taxpayermust strictly substantiate such expenditures.

e package. The IRS disallowed a deduction for these expenses on the ground that they were not "ordinary and ne- cessary" expenses ofSLS' trade or business and/or because petitioner and Calvin Moyer failed to satisfy the substantiation requirements ofsection 274. The IRS - 6 - [*6] accordingly reduced the allowable Schedule E loss claimed by petitioner and Calvin Moyer from $27,294 to $896. Tax Court Proceedings Calvin Moyer did not timely file a Federal income tax return for 2007. The IRS prepar

The spreadsheets certainly fail - 10 - [*10] to satisfy the stringent requirements ofsection 274, which call for additional and contemporaneous substantiation establishing the amount, time, place, and business purpose ofexpenditures.

Even ifsuch an expense would otherwise be deductible, section 274 may still preclude a deduction ifthe taxpayer does not present sufficient substantiation.

Such property-denoted "listed property" in section 274--includes "passenger automobiles" such as the Thunderbird and the Taurus for which petitioner claimed business use deductions.

Generally, unless prevented by section 274, the Court may estimate the amount ofsuch an expense and allow the deduction to that extent.

tiated any business purpose for that tax year.3 Absent two brief assertions in affidavits that the affiants purchasedpolicies in 2006, petitioners' testimony is uncorroborated for the 2006 tax year. These affidavits are not enough for the purposes ofsection 274. The Code does not preventtaxpayers from enjoying their work or from turning a leisure activity into a profitable one. See Jackson v. Commissioner, 59 T.C. 312, 317 (1973) (recognizingthat "suffering has never been made a prerequisite to

ner, 50 T.C. 823, 827-828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). Travel expenses, meals and entertainment, and expenses relating to certain listed property are subject to the specific and more stringent substantiation requirements of section 274. See sec. 274(d). To deduct such expenses, the taxpayermust substantiate by adequate records or sufficient evidence to corroborate the - 12 - [*12] taxpayer's own testimony: (1) the amount ofthe expense; (2) the time and place ofthe trave

Certain expenses specified in section 274, such as vehicle expenses, are subject to strict substantiation rules.

However, section 274 overrides the Cohan rule with regard to certain expenses as it requires stricter substantiation for travel, meals, and certain listed property such as passenger automobiles.

ed. He likewise introduced no evidence to establish what expenses were incurred in connection with medical conferences as opposed to personal travel. We thus sustain respondent's complete disallowance ofthis deduction for lack ofsubstantiation under section 274. - 13 - [*13] G. Other Expenses In part V ofhis Schedule C petitioner claimed a deduction of$85,264 for "other expenses" as follows: Accounting tax preparation $1,600 Conferences 10,089 Truck auto 8,500 Insurance truck auto 2,200 Outside

Certain business deductions described in section 274, however, are subject to strict substantiation.

Thus, insofar as deductions subjectto the strict substantiation requirements ofsection 274 are concerned, ifa taxpayer's records have been destroyed or lost because ofcircumstances beyondthe taxpayer's control, such as by fire, flood, earthquake, or other casualty, the taxpayermay substantiate the deduction by "reasonable reconstruction" ofhis or her expenses, see sec.

ol. 2) 1286, 1286. 3Petitioners did no claim a deduction for mileage related to petitioner's Conference travel; petiti ner was reimbursed by the Conference for that travel. 4Petitioner's monthly travel and expense reports satisfy the requirements of sec. 274 with respectto a deduction for the mileage shown on those reports; otherwise petitioners have not submitted adequate substantiation for the excess mileage. - 8 - travel because the Conference did not "have enough money" in the budget to reim

Since he has not met the strict substantiation requirements ofsection 274, petitioner is not entitled to any claimed deductions for travel and transportation expenses and cell phone expenses with respect to listed property.

6 to September 2006), Rev. Proc. 2006-41, 2006-2 C.B. 777 (October 2006 to September 2007), and Rev. Proc. 2007-63, 2007-2 C.B. 809 (October 2007 to December 2007). Although use ofthe M&IE rate does eliminate some ofthe substantiation requirements ofsec. 274 (essentially, the cost element), the taxpayer is not relieved ofsubstantiating the time, place, and business purpose ofthe travel. See sec. 1.274-5(j), Income Tax Regs.; Rev. Proc. 2005-67, sec. 4.03, 2005-2 C.B. at 732; Rev. Proc. 2006-41,

Certain expenses specified in section 274 are subject to strict substantiation rules.

6, 1985) (flush language) (noting that section 274 supersedes the Cohan rule).

Certain expenses specified in section 274 are subject to strict substantiation rules.

expense unless the taxpayerpresents a sufficient evidentiary basis on which an estimate can be made. See Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). No estimate can be made of expenses governed by the strict substantiation requirements ofsection 274. Sec 274(d). The only documentary evidence from the year at issue that Mr. Phillips provided to support his expenses was seven pages from five bank statements from 2008 on which he placed checkmarks next to payments that pertained to his "

Section 274 imposes more rigorous substantiation requirements for certain types ofexpenses. In particular, section 274(d) disallows deductions for travel expenses, expenses for business meals and entertainment, and expenses related to listed property, unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the

es The Laredo hunting property is real property Dr. Slater leased in connection with hunting, which is per se entertainment under section 1.274-2(b)(1)(i), Income Tax Regs. Therefore, the property constitutes an entertainment facility for purposes ofsection 274. Consequently, Austin Otology improperly deducted the related expenses, and we sustain respondent's disallowance ofthe deduction. The expenses Austin Otology paid for the North Carolina fishing trip and the other hunting expenses relate t

r automobiles are listed property, and expenses related to them cannot be estimated because strict substantiation ofthe expenses is required. See secs. 274(d), 280F(d)(4)(A)(i). Petitioner's memos do not meet the strict substantiation requirements ofsection 274. Therefore, petitioner is not entitled to deductions for car and truck expenses greater than the amount respondent concedes. See supra note 2. B. Repairs and Maintenance Expenses Petitioner claimed deductions for repairs and maintenance e

Under the section 274 regulations, in order to substantiate expenses relating to business use ofautoniobiles, a taxpayermust provide 6Because respondent did not assert or make any argument at trial or on his posttrial briefthat expenses petitioner reported on his 2005 return were neither ordinary nor necessary in carrying on ZFL Entertainment as a trade or b

Section 274, however, imposes heightened substantiation requirements for certain expenses, including automobile expenses. Secs. 274(d), 280F(d)(4)(A)(i). For expenses relating to automobiles, a taxpayermust substantiate "by adequate records or by sufficient evidence corroborating the taxpayer's own statement": (1) the amount ofeach separate expense

Section 274 Expenses Section 274(d) applies a more strict substantiation requirement for certain business expenses including, among other things, expenses for travel, meals and entertainment, gifts, and listed property (e.g., automobile expenses, cellular telephones, computer equipment, or any property ofa type generally used for purposes ofenterta

as begun to function as a going concern and performed those activities for which it was 7At trial petitioner admitted that the logs contained errors but described the logs as "pretty accurate". 8Because these deductions are for expenses described in sec. 274, we may not in the absence ofadequate substantiating records allow any deductions based upon estimates ofthose expenses even though it appears that petitioners would be entitled to some deduction for mileage driven in connection with one or

To satisfy the adequate records requirement ofsection 274, a taxpayermust maintain records and documentary evidence that in combination are sufficientto establish each element ofan expenditure or use.

She is not entitled to a deduction for vehicle expenses because she did not substantiate by the use ofa contemporaneous log or by any other reasonable means the number ofmiles traveled, the date, the place, and the business purpose ofsuch travel as required by section 274 and its corresponding regulation.

« Section 274 (d) generally imposes stringent substantiation requirements in the case of expenses, relating to the use of listed property,r specifically including any passenger automobile or other property used as a means of transportation. -Sec. 280F (d) (4) (A) (i) cand ("i-i) , -(5) ; Larson v. Commissioner, 3 T. C. Memo. 2008-187; sec..1.274-5T(a

Deductions for expenses that- are subject to the strict substantiation requirements of section 274 (d) must be disallowed in full unless the taxpayer satisfies every element. Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969). A taxpayer may substantiate his deductions by either adequate

Section 274 (d) imposes strict substantiation requirements for travel, entertainment, gift, and "listed property" expenses. Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). Under section 274 (d), the taxpayer generally mus

The heightened substantiation requirements of section 274 (d) apply to: (1) Any traveling expense, including meals and lodging away from home; (2) any item with respect to an activity in the nature of entertainment, amusement, or recreation; (3) any expense for gifts; or (4) the use of "listed property", as defined in section 280F(d) (4), including any passenger automobiles.

Claimed Travel Expenses Under section 274 (m) (2), no deduction is allowed "for expenses for travel as a form of education." However, taxpayers may deduct expenses incurred while traveling away from home if the .trip is primarily to obtain education that has the requisite relation to the taxpayer's business.

Expenses· for , items described in section 274 are subject to strict · sulSätântfation,rules e No deduction shall -be allowed -for, among other -things,-traveling.expenses, entertainment expenses, gifts, and.expenses with respect to listed property (including passenger automobiles) "unless the -taxpayer ,substantiates by adequate records or by -sufficient evidence corroborating-the

Consequently, petitioner has - 14 - failed to carry her burden of proof, and we therefore sustain respondent's determination disallowing any deduction for vehicle expenses. ii. Parking and Transportation Petitioner claimed that she paid $433 for parking fees and transportation during 2004. The parties agree that petitioner paid $286.

Notwithstanding the foregoing, in the case of certain expenses, section 274 (d) expressly overrides the so-called Cohan doctrine.

ce, we must conclude that Mrs. Ward's mileage totals, which were written on the phone calendar in 2007 and included miles driven around the areas where the listings were located, were best estimates, which cannot be the basis for a deduction under section 274. While we do not doubt that Mrs. Ward used the BMW for business purposes in 2005, she has not me.t the strict substantiation requirements of section 274. Accordingly, respondent's determination with respect to the section 179 deduction for

To satisfy the adequate records requirement of section 274 (d), the taxpayer shall maintain an account book, a diary, a log, a statement of expense, trip sheets, or similar record and documentary evidence that in combination are sufficient to establish each element of the expenditure or use.

- 10 - Certain business deduct:.ons as provided in section 274 are subject to strict rules of såbstantiation that supersede the doctrine in Cohan v.

- 5 - satisfy the strict substantiation requirements of section 274 (d) in order for a deduction to be allowed.

use * * * by adequate records or by sufficient evidence corroborating his own statement . Section 274(d) con- templates that a taxpayer will maintain and produce such substantiation as will constitute proof of each expenditure or use referred to in section 274 . Written evidence has considerably more probative value than oral evidence alone . In addition, the probative value of written evidence is greater the closer in time it relates to the expenditure or use . A contemporaneous log is not req

Generally, unless prevented by section 274, we may estimate the amount of such an expense and allow the deduction to that extent.

Items described in section 274 are subject to strict substantiation rules.

means of transportation, section 274 overrides the Cohan doctrine, and these expenses are deductible only if the taxpayer meets stringent substantiation requirements .

e Rule 142(a) . The preponderance of the evidence in this case is that petitioner deducted personal expenses as business expenses and failed to maintain records to substantiate travel, meals and entertainment,. or vehicle expenses as required under section 274 . Thus disallowance of all of the expenses in dispute is justified . Because we cannot identify any appropriate deductions, we need not address the limitations of section 469 . Respondent has the burden of production with respect to the se

Travel, Meals and Entertainment Expenses Certain business deductions described in section 274 are subject to strict rules of substantiation that supersede the doctrine in Cohan v.

The bulk of the expenses subsumed in the deduction for,-' ., employee business expenses is subject to the-strict substantiation standard'of section 274,(d) because those expenses` relate either to .traveling.

A claimed expense (other than those subjected to heightened scrutiny under section 274) may be~deductible-even where the taxpayer is unable to fully substantiate it .

d 559, 560 (5th Cir. 1957); Vanicek v. Commissioner, supra at 742-743. In certain circumstances, the taxpayer must meet specific substantiation requirements in addition to those of section 162, which are not subject to the Cohan doctrine. See, e.g., sec. 274. To satisfy the adequate records requirement of section 274, - 8 - a taxpayer must maintain-records and documentary evidence that in combination are sufficient to establish each element of an expenditure- or use. Sec. 1.274-5T(c) (1) and (2)

In addition to satisfying the criteria for deductibility under IIsection 162, certain categories'of expenses must also - 7 - satisfy the strict substantiation requirements of section 274( d in order for a deduction to be allowed .

In addition, section 274 ( d) impose stringent substantiation requirements for claimed deductions relating to the use of "listed property", which is defined und~r section 280F (d)(4)(A)(i) to include passenger aitomobiles .

Petitioner does not meet the substantiation requirements of section 274, and her miscellaneous itemized deductions were properly reduced .

The term-listed 19 - property", as incorporated into section 274, includes any passenger automobile .

612. Assuming arguendo that petitioner's records were destroyed after he was prohibited from entering his room . in Brooklyn, he has not reasonably reconstructed any records as required by th e exception to .the strict substantiation requirement of section 274 . We may accept credible testimony of a taxpayer t o substantiate a deduction requiring strict substantiation when a casualty to the taxpayer's records has been established and .no documentation is available, but we are not required to do

Written evidence has considerably: more probative_value than .. oral evidence alone . In addition, the probative value of written evidence is greater the closer in time it relates to the expenditure or use . A contemporaneous log is-not required, but a record of the elements of an expenditure or of a business use of listed property ma

004 . These expenses included parking fees, equipment purchases for work, telephone expenses, and various costs associated with th e petitioners' purchase of a home in 2004 . Parking expenses are .subject to the strict substantiation requirements of section 274 . The record provides almost no detail as to the specific expenditures, beyond-petitioner's vague testimony about paying for parking for work-related court appearances . Considering petitioner's lack of records, we sustai respondent' s di

Durand also testified that'.he had no other records of these expenses for 2004 because "some of .them,were thrown away ."' Expenses for cell phone use must be substantiated in accordance with section 274 and the regulations thereunder .

Section 274(,d) requires the taxpayer to substantiate the amount, time, place, and . business,purpose,~:of.these expenditures and to ' provide . adequate records orsufficient evidence to , .. corroborate his own. statement-. . See .sec. 1..274-5T(c) (1)., Temporary Income Tax Regs ., 50 Fed . Reg. 46016 .(Nov,.~ 6, 1985). . Petitioner did not maint

records or sufficient evidence and bars any deduction for an expenditure governed by section 274 on the basis of unsupported testimony of the taxpayers or on the basis of the taxpayers' approximation .2 Sec .

If-an expense is subject to section 274-(d), no deduction is allowable on the basi n of any approximation, r`the taxpayer's unsupported testimony .

Furthermore, business expenses described in section 274 are subject to strict substantiation rules .

In addition, it has not been established that the requirements of Internal Revenue Code Section 274 have been met ." For 2003 respondent also disallowed $1,803 of petitioners' itemized deductions because of lack of substantiation .' This amount consisted of home mortgage interest expense of $645 and unreimbursed employee expenses of $1,158 .

In that regard, section 274(d ) provides for a higher standard of substantiation for certain business expenses .

However, section 274 disallows deductions otherwise available in many cases unless certain substantiation requirements have been met .

In the case of expenses=paid or incurred with respect t o travel and certain listed roperty, section 274 overrides the Cohan rule , and those expenses are deductible only if the taxpayer meets the stringent substantiation requirements o f section 274( d) .

Use of the standard mileage rate establishes the amount deemed expended with respect to the business use of a passenger automobile, but it does not relieve a taxpayer of his burden of substantiating the other elements required by section 274,and the regulations issued thereunder .

description such as "Answering Questions . " We find Mr . Soholt's testimony on this issue to be thoughtful and credible . Unfortunately, the evidence petitioners submitted to substantiate their hospitality expenses does not meet the requirements of section 274 . Petitioners do not have records indicating the business purposes of the expenses, Mr . Soholt's business relationship to the persons entertained or any other information that would comply with the strict substantiation requirements . Th

Expenses Subject to Section 274(d ) Section 274( d) supersedes the Cohan rule , and the Court cannot estimate a taxpayer' s expenses with respect to certain items .

Use of the standard mileage rate establishes the amount deemed expended with respect to the business use of a passenger automobile, but it does not relieve a taxpayer of his burden of substantiating the other elements required by section 274,and the regulations issued thereunder .

or use * * by adequate records or by sufficient evidence corr borating his own statement . Section 274(d) con- templates that a taxpayer will maintain and produce such substantiation as will constitute proof of each expe diture or use referred to in section 274 . Written evidence has considerably more probative value than oral evidence alone . In addition, the probative value of written evidence is greater the closer in time it relates to the expenditure or use . A contemporaneous log is not req

This sort of “reasonable reconstruction” is always a good practice, and it is required for expenses (like the travel expenses that the partnership claimed) subject to section 274's limitations.

h a sufficient connection between the deduction and his trade or business. Gorman v. Commissioner, T.C. Memo. 1986-344. Certain expenses that otherwise qualify for deduction under section 162(a) require enhanced, more specified substantiation under section 274. These include travel, food, and entertainment expenses. For these items, taxpayers must show that an expense was “directly related” to the business activity, and must provide the business purpose, amount, and time and place of the expendi

- 39 - Furthermore, business expenses described in section 274 are subject to rules of substantiation that supersede the doctrine of Cohan v .

use * * * by adequate records or by sufficient evidence corroborating his own statement . Section 274(d) con- templates that a taxpayer will maintain and produce such substantiation as will constitute proof of each expenditure or use referred to in section 274 . Written evidence has considerably more probative value than oral evidence alone . In addition, the probative value of written evidence is greater the closer in time it relates to the expenditure or use . A contemporaneous log is not req

- 12 - In the case of travel expenses, entertainment expenses, and expenses paid or incurred with respect to listed property, e.g., passenger automobiles, section 274 overrides the Cohan doctrine, and expenses are deductible only if the taxpayer meets the section’s stringent substantiation requirements.

r use * * * by adequate records or by sufficient evidence corroborating his own statement. Section 274(d) con- templates that a taxpayer will maintain and produce such substantiation as will constitute proof of each expenditure or use referred to in section 274. Written evidence has considerably more probative value than oral evidence alone. In addition, the probative value of written evidence is greater the closer in time it relates to the expenditure or use. A contemporaneous log is not requir

They also argue that they should be allowed to deduct business expenses to which section 274 applies because they have satisfied the substantiation requirements of section 1.274-5T(c)(5), - 10 - Temporary Income Tax Regs., 50 Fed.

In the case of travel expenses, entertainment expenses, and expenses paid or incurred with respect to listed property, e.g., passenger automobiles, section 274 overrides the Cohan doctrine, and expenses are deductible only if the taxpayer meets the section’s stringent substantiation requirements.

The Court is satisfied that petitioners incurred some expenses that are not subject to the strict substantiation rules of section 274, and, for such expenses, the Court allows petitioners a deduction of $2,000.

In the absence of either substantiating documentation or testimony, petitioners are likewise not entitled to deductions for the remaining categories of business expenses (except office rent and advertising) claimed on their 1992 and 1993 Schedules C. Because petitioner offered testimony regarding the office rent and advertising expenses p

The substantiation must show the -13- amount of such expense or other item, the time and place of the expense, the business purpose of the expense, and the business relationship to the taxpayer of the person entertained. See sec. 274(d); sec. 1.274-5T, Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). We may not estimate exp

In the case of travel expenses, entertainment expenses, and expenses paid or incurred with respect to listed property, e.g., passenger automobiles, section 274 overrides the Cohan doctrine, and expenses are deductible only if the taxpayer meets the section’s stringent substantiation requirements.

- 17 - In the case of travel expenses, entertainment expenses, and expenses paid or incurred with respect to listed property, e.g., passenger automobiles, section 274 overrides the Cohan doctrine, and expenses are deductible only if the taxpayer meets the section’s stringent substantiation requirements.

- 8 - Under the strict substantiation requirements of section 274, the taxpayer must substantiate the amount, time, and business purpose of the expenditures and must provide adequate records or sufficient evidence to corroborate his or her own statement.8 Adequate records are defined as a diary, a log, or a similar record, and documentary evidence that, in combination, are sufficient to establish each

The affidavit also contains no information to establish that requirements of other applicable Code sections, such as section 274, were satisfied.

Generally, unless precluded by section 274, the Court may - 4 - estimate the amount of such an expense and allow the deduction to that extent.

Generally, unless precluded by section 274, the Court may estimate the amount of such an expense and allow the deduction to that extent.

In such a situation, however, taxpayers must be prepared to meet all the substantiation requirements, including, especially, written documentation as to the amounts of those costs.” The Court goes on to refer to the section 274 - 4 - regulations which except taxpayers from strict substantiations in the case of expenditures of less than a prescribed amount.

In the case of travel expenses and expenses paid or incurred with respect to listed property, e.g., passenger automobiles, section 274 overrides the Cohan doctrine, and expenses are deductible only if the taxpayer meets the section’s stringent - 16 - substantiation requirements.

Furthermore, business expenses described in section 274.are subject to rules of substantiation that supersede the doctrine of Cohan v.

ver, must have a reasonable evidentiary basis. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985). Respondent asserts for the first time in his trial memorandum that certain of petitioner’s Schedule C deductions are also subject to the requirements of section 274. Section 274 supersedes the Cohan rule, see sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985), and imposes more stringent substantiation requirements for travel, meals and entertainment, gifts, and with respe

As the Treasury Department’s regulations under section 274 state as to the matter of entertainment: An objective test shall be used to determine whether an activity is of a type generally considered to constitute entertainment.

e just that, self-serving, unverified, and undocumented. As such, we conclude that petitioners have failed to establish that they are entitled to the deductions claimed on their Schedules C under section 162, much less under the strict standards of section 274. As to the accuracy-related penalty, section 6662(a) imposes a 20 percent penalty on the portion of any underpayment of tax attributable to negligence or disregard of rules or regulations. Sec. 6662(b)(1). Negligence is any failure to make

This does not meet the substantiation requirements of section 274 and the regulations thereunder.

The allowance of travel and entertainment business deductions described in section 274 are subject to strict rules of substantiation.

However, section 274 supersedes the doctrine of Cohan v.

Furthermore, business expenses described in section 274 are subject to rules of substantiation which supersede the doctrine of Cohan v.

e or overly burdensome to require detailed documentary evidence, section 274(d) and the regulations thereunder vest the Secretary with the authority to promulgate regulations that prescribe alternative methods for substantiating expenses covered by section 274. Sec. 1.274-5T(j), Temporary Income Tax Regs., 50 Fed. Reg. 46032 (Nov. 6, 1985). Pursuant to this authority, the Secretary issued Rev. Proc. 94-77, 1994-2 C.B. 825; Rev. Proc. 96-28, 1996-1 C.B. 686; and Rev. Proc. 96- 64, 1996-2 C.B. 427

However, section 274 supersedes the Cohan doctrine, see sec.

274 requires a taxpayer to substantiate expenses for travel, meals and entertainment, and gifts, and with respect to listed property (as defined in sec. 280F(d)(4) and including passenger automobiles) by adequate records or by sufficient evidence corroborating the taxpayer’s own statement establishing the amount, time, place, and business purp

However, section 274 supersedes the doctrine of Cohan v.

Failure to prove the exact amount of an otherwise deductible item may not always be fatal, because generally, unless precluded by section 274, we may estimate the amount of such an expense and allow the deduction to that extent.

Section 274 supersedes the doctrine in Cohan v. Commissioner, supra, see sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985), and requires strict substantiation of expenses for travel, meals and entertainment, and gifts, and with respect to any listed property as defined in section 280F(d)(4), see sec. 274(d). Listed pro

Expenses Not Subject to Section 274 As a preliminary matter, we note that a number of the expenses included by petitioner under the category of traveling expenses do not constitute traveling expenses for purposes of section 274(d).

With these principles in mind we turn to the expenses claimed and in dispute here. 1. Automobile.--Petitioners claimed a deduction of $9,294 for automobile expenses. Respondent disallowed $7,966 of that amount. The deduction claimed was based on the number of miles allegedly driven in connection with petitioner’s ministry. Section 274(d)(

Petitioner did not satisfy the strict requirements of section 274 with respect to his travel.

On brief, petitioner’s counsel erroneously states that bookkeeping expenses are subject to the rules of section 274, as the entertainment expenses are.

Furthermore, business expenses described in section 274 are subject to rules of substantiation which supersede the doctrine of Cohan v.

However, section 274 supersedes the doctrine in Cohan v.

- 6 - Certain business deductions described in section 274, however, are subject to strict substantiation.

- 18 - employment, petitioner has failed to substantiate business purpose as required by section 274.8 In conclusion, petitioner has failed to satisfy the section 274 substantiation requirements for the $8,291 of unreimbursed employee expenses that he claimed on his 1995 Schedule A.

In the absence of adequate records to substantiate each element of an expense under section 274, a taxpayer may alternatively establish such element: (A) By his own statement, whether written or oral, containing specific information in detail as to such element; and (B) by other corroborative evidence sufficient to establish such element.

In addition to the above criteria for deductibility under section 162, certain categories of expenses must also satisfy the strict substantiation requirements of section 274 in order for a - 6 - deduction to be allowable.

Beck's Liquors did not comply with the detailed substantiation requirements of section 274 and the regulations thereunder.

To obtain a deduction for travel expenses under section 274, a taxpayer must substantiate the amount of the expense, the time - 7 - and place of the use, and the business purpose of the use by adequate records or sufficient evidence to corroborate the taxpayer’s own statement.

er is not entitled to calculate his deduction by using per diem rates. Section 274(d) and the regulations thereunder vest the Secretary with authority to promulgate regulations that prescribe alternative methods of substantiating expenses covered by section 274. See sec. 1.274-5T(j), Temporary Income Tax Regs., 50 Fed. Reg. 46032 (Nov. 6, 1985). Pursuant to this authority, the Secretary has issued a series of revenue procedures providing rules under which the amount of an employee’s ordinary and

deduction as modified. - 18 - Meals and Entertainment Expenses On his 1994 Schedule C, petitioner claimed a deduction for meals and entertainment in the amount of $2,435, calculated as follows: Meals and entertainment $4,871 Less: 50% limitation of sec. 274 (2,436) Total deduction $2,435 Petitioner now contends that he is entitled to a deduction for meals and entertainment of $1,770, calculated as follows: Meals and entertainment $3,539 Less: 50% limitation of sec. 274 (1,769) Total revised dedu

ndent concedes that all of the expenses at issue meet the requirements for deductions as ordinary and necessary business expenses of petitioner under section 162 for the years in issue. However, respondent argues that these deduction are limited by section 274. Petitioners argue they are in the entertainment business, and accordingly, they should not be subject to the restrictions of section 274(n) with respect to expenses they incur in the course of providing that entertainment. Alternatively,

he time and place such expense was incurred, (3) the business purpose of the expense, and (4) the business relationship to the taxpayer of persons entertained. Sec. 274(d). The regulations further clarify the stringent substantiation requirements of section 274. A taxpayer generally must substantiate each expenditure by producing (1) adequate records or (2) sufficient evidence to corroborate his or her own statement. Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016-46017 (Nov.

Under section 274, a taxpayer must substantiate the amount, time, place, and business purpose of the expenditures and must provide adequate records or sufficient evidence to corroborate his own statement. See sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). Adequate records are defined as an account book, diary, log, st

in the notice of deficiency. - 6 - Issue 1. Unreimbursed Employee Business Expense Deduction In order to deduct unreimbursed employee business expenses, a taxpayer must satisfy the requirements of section 162, and, with respect to certain expenses, section 274. Section 162(a) authorizes a deduction for all ordinary and necessary expenses paid or incurred during a taxable year in carrying on a trade or business. An "ordinary" expense is one that relates to a transaction "of common or frequent occ

Except in the case of - 20 - expenses subject to section 274, if a claimed business expense is deductible, but the taxpayer is unable to substantiate it adequately, the Court is permitted to make as close an approximation as possible, bearing heavily on the taxpayer whose inexactitude is of his own making.

- 8 - The third deduction concerns claimed car and truck expenses of $3,120.7 The substantiation requirements under section 274 apply to passenger automobiles.

OPINION Employee Vehicle Expenses Respondent argues that petitioners failed to substantiate their deductions for vehicle expenses as required by section 274 because they failed to establish the business use of their personal automobiles, as well as the location or destination of travel, and the business purpose.4 4Respondent also argues in the alternative that Mr.

However, section 274 prohibits deductions otherwise allowable for expenses paid with respect to a facility used in connection with an activity generally considered to constitute entertainment, amusement, or recreation.

Because the remaining expenses are for items not covered by section 274, we are permitted to estimate them if we are convinced from the record that the taxpayer has incurred such expenses.

Failure to prove the exact amount of an otherwise deductible item may not always be fatal, because generally, unless precluded by section 274, we may estimate the amount of such an expense and allow the deduction to that extent.

ess purpose of each expense and the business relationship to the taxpayer of persons entertained. Although they deducted thousands of dollars each year for “entertainment”, petitioners have failed to substantiate any of those expenses as required by section 274. The amounts claimed apparently included in many instances three meals a day for petitioners and their dependent son. Although they claim that they were entertaining potential customers, this claim is inherently improbable. Petitioner Rod

Ultimately, however, petitioner did not meet the standard required by section 274 to show the vehicle's business usage.

Therefore, because petitioner has not shown that this $10,000 rental expense was an ordinary and necessary business expense or that he satisfied the record-keeping requirements of section 274 with respect to foreign travel, he is not entitled to a deduction for rental expense.

Furthermore, to prove entitlement to deductions for travel and entertainment expenses, - 30 - the taxpayer must meet the specific substantiation requirements of section 274, including the date, time, place, amount, and business purpose of the expense as well as the business relationship of those entertained by the taxpayer.

This has been the rule under section 162 and its predecessors, even without regard to the restrictions of section 274, enacted in 1962.

They did, however, argue that certain items, such as accrued taxes, - 25 - interest on the corporate tax deficiencies, and ordinary and necessary business expenses, disallowed for lack of section 274 substantiation, reduce earnings and profits.

Therefore, because petitioner has not shown that this $10,000 rental expense was an ordinary and necessary business expense or that he satisfied the record-keeping requirements of section 274 with respect to foreign travel, he is not entitled to a deduction for rental expense.

Thus, we find that, other than as allowed by respondent, petitioner has failed to substantiate the deductions claimed for car transportation, parking, meals and entertainment, and gifts, as required by section 274 and the regulations thereunder.

lly v. Commissioner, 56 T.C. 936, 943 (1971) (same), affd. without published opinion 456 F.2d 1335 (2d Cir. 1972). In order to deduct unreimbursed vehicle expenses, petitioners must also substantiate the expenses in accordance with the provisions of section 274. Section 274(d)(4) provides that no deduction is allowable with respect to listed property, as defined in section 280F(d)(4), unless the deductions are substantiated in accordance with the strict substantiation requirements of section 274

nses On his Schedule C for tax year 1988, petitioner husband claimed a deduction in the amount of $2,110 for meals and entertainment expenses. Respondent disallowed the deduction for failure to comply with the substantiation requirements pursuant to section 274. Section 274 requires that the taxpayer substantiate expenses claimed for entertainment by adequate records to corroborate his or her own testimony as to (1) the amount of the expense, (2) the time and place of the entertainment, (3) the

ime and place such expense was incurred, (3) the business purpose of the expense, and (4) the business relationship to the taxpayer of any persons entertained. Sec. 274(d). The regulations further clarify the stringent substantiation requirements of section 274. A taxpayer generally must substantiate each expenditure by producing (1) adequate records or (2) sufficient evidence to corroborate his or her own statement. Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016-46017 (Nov.

Section 274 disallows deductions for entertainment expenses unless the taxpayer is able to establish that the item is related to, or associated with, the active conduct of his or her trade or business. Sec. 274(a)(1)(A). At the same time, section 274(d) imposes substantiation requirements for these deductions which are even more exacting than the r

Section 274 generally disallows deductions for expenses for entertainment facilities, unless the taxpayer establishes that the facility was used primarily for the furtherance of the taxpayer's trade or business and that the item was directly related to the active conduct of such trade or business. Sec. 274(a)(1)(B); sec. 274(a)(2)(C). In order to s

However, for some other types of expenses lack of substantiation can be overcome. See, e.g., Phillips v. Commissioner, T.C. Memo. 2013-215, at *22–23. “[I]f a taxpayer establishes that a deductible expense has been paid but cannot establish the precise amount of the deductible expense, the Court may estimate the amount.” Id. at *23 (c

o. 2025-27, at *5; Rodriguez v. Commissioner, T.C. Memo. 2009-22, 2009 WL 211430, at *4 (stating, with respect to the Cohan rule, that “we can’t just guess”). No estimates can be made of expenses governed by the strict substantiation requirements of section 274. III. Analysis of Claimed Deductions Mr. Johnson’s late 2018 tax return claims business expense deductions as well as itemized deductions for medical and dental expenses and charitable contributions. Mr. Johnson, however, failed to assign

enses should properly be character- ized as business rather than personal expenses. Even if petitioner had established that these were legitimate expenses she actually paid, we would deny the claimed deduction for that reason. B. Expenses Subject to Section 274 1. Travel Expenses Petitioner claimed deductions of $8,688 for hotel expenses during 2019. She submitted purported receipts from Marriott hotels (for 6-day stays in Chicago, San Diego, and New Orleans), from Hilton (for a 5-day stay in Ho

253, 297. Thus, 57 years after enacting the 29 AIA, Congress amended the statutory scheme to create a limited exception to the default rule, which permits a taxpayer to sustain a challenge to taxes only after the amounts are paid and the taxpayer sues for a refund. Compare Act of Mar. 2, 1867, § 10, 14 Stat. at 475, with Revenue Ac

The income tax examiner found that PARENT did not maintain adequate records, as required under section 274, to substantiate some of its Local Barter Usage deductions.

Description 2014 2015 2016 Café $8,795 $8,691 — Construction 20,973 1,495 $46,396 business 13 Petitioners argue: [They] feel that they have provided sufficient evidence and testimony that supports the spirit and intent of meeting the [sic] IRS Section 274, §1.274-5T(c)(1) and IRS § 1.274-5T(c)(2).

See 10 Though the parties did not explicitly raise this issue at trial, respondent referenced section 274 in his Posttrial Opening Brief.

Expenses subject to section 274 Deductions for certain otherwise deductible expenses, such as travel, meals, entertainment, and vehicle expenses, are subject to strict substantiation requirements.

731, 742–43 (1985); Rodriguez v. Commissioner, T.C. Memo. 2009-22, 2009 WL 211430, at *4 (stating, with respect to the Cohan rule, that “we can’t just guess”). No estimate can be made of expenses governed by the strict substantiation requirements of section 274. “If a taxpayer can establish that he once had adequate records but lost the records because of circumstances beyond his control, such as a fire, flood, or other casualty, then the Court will permit the taxpayer to reasonably reconstruct

Petitioner credibly testified with respect to the operation of his business and the types of expenses he paid in connection with the business (including expenses otherwise subject to the limitations of section 274), but his generalized testimony provides no basis for allowing a deduction for any expense in excess of the amount respondent already allowed.

ubstantiate five of the eight purchases of fabric and other related items shown on the 2016 supplies spreadsheet—on January 28, 2016, of $241 and $152; on November 15, 2017, of $24; on November 21, 2017, of $38; and on December 31, 2017, of $160.8 6 The Cohan rule is superseded—that is, estimates are not permitted—for certain expenses specified in section 274, and instead those types of expenses are subject to strict substantiation rules.

Section 274 therefore requires that we first analyze whether and when the Code treats attachments as the vehicles to which they are attached. We know that listed property includes any passenger automobile. Treas. Reg. § 1.280F-6(b)(1)(i). A “passenger automobile” includes a four-wheeled vehicle that is manufactured primarily for use on public stree

Section 274 disallows deductions otherwise permitted under section 162(a), section 167(a), or section 212. There are two provisions of section 274 we will discuss here: section 274(a)(1)(B) and section 274(d). Section 274(a)(1)(B) disallows deductions for the expenses of a facility used in connection with entertainment. Section 274(d) imposes rules

We find that the evidence petitioner presented satisfies the substantiation requirements of the relevant portions of section 274 and its regulation, see Temp.

Use of the standard mileage rate establishes the amount deemed expended with respect to the business use of a passenger automobile, but such use does not relieve a taxpayer of the burden of substantiating the other elements required by section 274 and the regulations thereunder.

Consequently, even if such an expense would otherwise be deductible, section 274 may still preclude a deduction if the taxpayer does not present sufficient substantiation.

erty the regulation provides a separate definition of “[t]ime” as the “[d]ate of the expenditure or use with respect to listed property”. Sec. 1.274-5T(b)(6)(ii), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). - 11 - referred to in section 274.” Id. para. (c)(1), 50 Fed. Reg. 46017. “A contemporaneous log is not required,” but “the corroborative evidence required to support a statement not made at or near the time of the expenditure or use must have a high degree of probative val

ax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985); see also Shea v. Commissioner, 112 T.C. 183, 186-188 (1999) (disallowing travel-related business expense deductions because the taxpayer failed to comply with the “stringent substantiation requirements of section 274”). To substantiate by adequate records, a taxpayer must provide an account book, a log, or similar record and documentary evidence which together are sufficient to establish each element with respect to an expenditure. Sec. 1.274-5T(c)(2)

Certain expenses specified in section 274 are subject to strict substantiation rules, such as travel expenses, including meals and lodging, and expenses pertaining to passenger automobiles.

enewal notice for 2018. Although we find credible her testimony that she wished her business mail to be delivered to a post 8We note that in 2015 computers were listed property under sec. 280F(d)(4)(A) and thus subject to strict substantiation under sec. 274. Ms. Chancellor groups her computer, internet, and post office box expenses together, and we will treat them in like fashion. As we explain Ms. Chancellor fails to supply adequate substantiation for any of these expenses, even under the less

The law also has enhanced substantiation requirements under section 274 for some expenses.

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274, such as traveling expenses (including meals and lodging while away from home), entertainment expenses, and "listed property" (including passenger automobile and phone) expenses.

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274, such as traveling expenses (including meals and lodging while away from home), entertainment expenses, and "listed property" (including passenger automobile and phone) expenses.

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274; to wit, traveling expenses (including meals and lodging while away from home), entertainment expenses, and "listed property" (including passenger automobile, computer, and, as relevant here, 2009 phone) expenses.¹6 Secs.

etitioners have conceded that JTI is not entitled to deductions for outside services. Our resolution ofthe substantiation issue turns on the applicable law and our determination ofthe credibility ofthe evidence presented. A. Expenses Not Subject to Section 274 1. Accounting Expenses JTI claimed deductions of$2,603 and $2,403, respectively, for accounting expenses on its 2013 and 2014 partnership returns. Respondent argues that petitioners neither substantiated the amounts claimed nor differentia

Certain expenses specified in section 274 are subject to strict substantiation rules.

- 33 - [*33] But section 274 bars us from estimating such expenses.

- 33 - [*33] But section 274 bars us from estimating such expenses.

The Cohan rule, however, is superseded--that is, estimates are not permitted--for certain expenses specified in section 274, such as traveling expenses (including meals and lodging while away from home), entertainment expenses, and "listed property" (including passenger automobile) expenses.

ent already allowed. Nonetheless, petitioners are entitled to a first-year depreciation deduction in respect ofthe property the cost ofwhich must be capitalized. The 4Sec. 280F(d)(4)(A) subjects computers to the special substantiation requirements ofsec. 274 as "listed property". - 10 - parties shall compute the allowable amount ofa depreciation deduction for the computer accessories under Rule 155. II. Accuracy-Related Penalty According to respondent, petitioners are liable for a section 6662(a

Certain expenses specified in section 274 are subject to strict substantiation rules.

24, 2003), the IRS analyzed the ramifications of the holding ofthe Johnson Opinion and addressed the following issues: (1) whetherNotice 95-50, supra, affects the requirement to maintain records to substantiate a travel expense under section 274 and (2) deductibility ofincidental expenses incurred while aboard a "ship in the middle ofthe ocean".

1985). Without such a basis, any allowance would amount to unguided largesse. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957). - 33 - [*33] The Cohan rule is inapplicable to expenses governed by the strict substantiation requirements ofsection 274. Section 274(d) provides that no deduction or credit shall be allowed for, inter alia, any traveling expense or entertainment expense, or any expense related to listed property as defined in section 280F(d)(4)," unless the taxpayer substan

24, 2003), the IRS analyzed the ramifications of the holding ofthe Johnson Opinion and addressed the following issues: (1) whetherNotice 95-50, supra, affects the requirement to maintain records to substantiate a travel expense under section 274 and (2) deductibility ofincidental expenses incurred while aboard a "ship in the middle ofthe ocean".

Certain expenses specified in section 274 are subject to strict substantiation rules.

Note, though, that Henry is over a half-century old, and Congress has since enacted section 274 to restrict the deductibility ofsuch sometimes extravagant expenses.8 Our first question then is whether section 274's limits apply here.

Under section 274, certain - 35 - [*35] expenses carry strict substantiation requirements. This means that a taxpayerhas to show the amount, time, place, and business purpose ofeach expense, usually in the form ofa contemporaneous account book, diary, or log. Sec. 1.274-5T(b) and (c)(1), (2), and (3), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

Section 274 overrides the Cohan rule with regard to certain expenses and requires stricter substantiation for travel, meals, and certain listed property. See Sanford v. Commissioner, 50 T.C. 823, 828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). These strict s

Section 274 overrides the Cohan rule with regard to certain expenses and requires stricter substantiation for travel, meals, and certain listed property. See Sanford v. Commissioner, 50 T.C. 823, 828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). These strict s

79(c) to treat the item as a current expense. Under the circumstances petitioners were obliged to capitalize the expenditure and are not entitled to the benefits ofa "Sec. 280F(d)(4)(A) subjects computers to the special substantiation requirements ofsec. 274 as "listed property". -14- current deduction under section 179.9 See Jackson v. Commissioner, T.C. Memo. 2008-70, 2008 WL 731318, at *7. II. Addition to Tax Respondent determined that petitioners are liable for an addition to tax under secti

Under section 274, certain - 35 - [*35] expenses carry strict substantiation requirements. This means that a taxpayerhas to show the amount, time, place, and business purpose ofeach expense, usually in the form ofa contemporaneous account book, diary, or log. Sec. 1.274-5T(b) and (c)(1), (2), and (3), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

However, section 274 overrides the Cohan rule with regard to certain expenses, including travel and certain listed property,7 which ifotherwise allowable are subject to strict substantiation rules.

Under section 274, certain - 35 - [*35] expenses carry strict substantiation requirements. This means that a taxpayerhas to show the amount, time, place, and business purpose ofeach expense, usually in the form ofa contemporaneous account book, diary, or log. Sec. 1.274-5T(b) and (c)(1), (2), and (3), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

With respect to the car and truck expenses, the statement does not specify the business purpose ofthe vehicles and therefore fails to satisfy the requirements ofsection 274.3 On the basis ofthe record before us, petitioners have not established that they paid or incurred their reported Schedule C expenses in 2012.

Under section 274, certain - 35 - [*35] expenses carry strict substantiation requirements. This means that a taxpayerhas to show the amount, time, place, and business purpose ofeach expense, usually in the form ofa contemporaneous account book, diary, or log. Sec. 1.274-5T(b) and (c)(1), (2), and (3), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

aff'd without published opinion, 720 F.2d 664 (3d Cir. 1983). Qualified entities under section 170 are generally organizations that qualify for an exemption under section 501(c)(3). See, e.g., 5 Even ifwe had a reasonable basis for making estimates, sec. 274 would preclude us from allowing deductions the LLC claimed for travel, meal, entertainment, automobile, and fuel expenses. See secs. 274(d), 280F(d)(4); sec. 1.274-2(b)(1)(i), Income Tax Regs.; sec. 1.274-5T(a), Temporary Income Tax Regs., 5

ection 274(d). See Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). Deductions with respect to certain "listed property", including computers, are also subject to the strict substantiation rules ofsection 274. See secs. 274(d)(4), 280F(d)(4). Among other requirements, the taxpayermust establish the amount ofeach business use and the total use ofthe listed property during the taxable period. Sec. 1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs.,

Expenses Under Section 274 Taxpayers are required to substantiate expenses underlying a claimed deduction by maintaining records sufficient to establish the amounts ofthe expenses and to enable the Commissioner to determine the correct tax liability.

imed in the Schedules C for his financial services business and marketing consulting business for 2011, including adequate records to substantiate - 38 - the passenger automobile expenses that are subject to the strict substantiation requirements ofsection 274. Petitioner also failed to maintain adequate records to allocate the cable and internet services, cellular phone services, and AAA membership between his personal and business use and, instead, carelessly deducted these expenses in full as

Business expenses specified in section 274 are subject to rules ofsubstantiation that supersede the Cohan test.

Business expenses specified in section 274 are subject to rules ofsubstantiation that supersede the Cohan test.

ection 274(d). See Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). Deductions with respect to certain "listed property", including computers, are also subject to the strict substantiation rules ofsection 274. See secs. 274(d)(4), 280F(d)(4). Among other requirements, the taxpayermust establish the amount ofeach business use and the total use ofthe listed property during the taxable period. Sec. 1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs.,

for this pur- 3Petitionerurges that he be allowed a deduction of$256 for mileage ex- penses incurred in driving to the post office to mail items to his eBay purchasers. Automobile expenses are subject to the heightened substantiation requirements of section 274. See sec. 280F(d)(4)(A)(i); Fernandez v. Commissioner, T.C. Memo. 2011-216. Petitioner offered no substantiation whatever for these alleged ex- penses and thus failed to discharge his burden ofproof. - 7 - [*7] pose. Sec. 6001; Nunn v. Co

Expenses Subject to Section 274 Expenses for meals and entertainment and passenger automobiles are subject to strict rules ofsubstantiation.

Section 274 subjects all travel expenses to very detailed substantiation requirements. While a contemporaneous log isn't necessary, a taxpayer like Niemann must still substantiate by adequate records or other corroborating evidence the amount, time, place, and business purpose ofthe expense. Sec. 1.274-5T(c)(1) and (2), Temporary Income Tax Regs.,

Section 274 imposes heightened substantiation requirements for the deduction ofspecified expenses. To deduct certain expenses, including expenses related to travel, meals, gifts, or listed property, the taxpayermust "substantiate[ ] by adequate records or by sufficient evidence corroborating the taxpayer's own statement": (1) the amount ofthe expen

274a.12(c)(17)(iii) (2011) (listing classes ofaliens who may apply for authorization for work in the United States and including only foreign airline employees who have been issued B-1 visas); Social Security Administration's Program Operations Manual System RM 10211.420G.3 (classifyingholders of C-1 and D visas as nonimmigrants who may not wo

uate records or by sufficient evidence corroborating the taxpayer's own statement the following five elements: the amount, date, time, place, and business purpose ofthe expense. To meet the adequate records requirement for the expenses enumerated in sec. 274, a taxpayer must maintain an account book, a diary, a log, a statement ofexpense, trip sheets, or a similar record or documentary evidence which, in combination, would be sufficient to establish each element ofexpenditure or use. Sec. 1.274-

However, her testimony unsupported by the type ofsubstantiation required by section 274 is insufficientto allow her a deduction in any amount.

At trial this Court granted respondent's motion in limine in part to exclude documents that relate to section 274 expenses and allowed the introduction ofdocuments that specifically relate to nontaxable income and other deductible expenses.

uate records or by sufficient evidence corroborating the taxpayer's own statement the following five elements: the amount, date, time, place, and business purpose ofthe expense. To meet the adequate records requirement for the expenses enumerated in sec. 274, a taxpayer must maintain an account book, a diary, a log, a statement ofexpense, trip sheets, or a similar record or documentary evidence which, in combination, would be sufficient to establish each element ofexpenditure or use. Sec. 1.274-

274a.12(c)(17)(iii) (2011) (listing classes ofaliens who may apply for authorization for work in the United States and including only foreign airline employees who have been issued B-1 visas); Social Security Administration's Program Operations Manual System RM 10211.420G.3 (classifyingholders of C-1 and D visas as nonimmigrants who may not wo

274a.l2(c)(17)(iii) (2011) (listing classes of aliens who may apply for authorization for work in the United States and including only foreign airline employees who have been issued B-l visas); Social Security Administration’s Program Operations Manual System RM 10211.420G.3 (classifying holders of C-l and D visas as nonimmigrants who may not

Generally, unless prevented by section 274, the Court may estimate the amount ofsuch an expense and allow the deductionto that extent.

Section 274 limits the overall deductibility ofentertainment (which includes meals with clients) and travel expenses otherwise allowable under section 162 as "ordinary and necessary" business expenses. Section 274(a)(1) generally disallows deductions for entertainment and recreation but carves out an exception - 10 - ifthe taxpayer establishes tha

ctivity or the home care activity.2 It is therefore unnecessaryto decide whether petitioners have substantiatedthe expenses reported on the Schedules C. In any event, most ofthe amounts would not meet the more stringent substantiation requirements ofsection 274. III. Accuracy-RelatedPenalties Respondent also determined 20% accuracy-relatedpenalties under section 6662(a) on the underpayments oftax for the years at issue. Respondent determined that petitioners are liable for the penalties because

Generally, unless prevented by section 274, the Court may estimate the amount ofsuch an expense and allow the deductionto that extent.

rom Phoenix to Tampa principally "to discuss real estate issues with * * * [petitioner] as the broker" is singularly unpersuasive. In sum, petitioners are not entitled to a deduction for any expense subjectto the strict substantiation requirements ofsection 274. B. Deductions Not Subject to Section 274 We turn now to petitioners' Schedule C deductions that are not subjectto section 274. Although strict substantiation is not required, petitioners are still obliged to substantiate the expenses tha

To meet the adequate records requirements ofsection 274, a taxpayermust maintain some form ofrecords a.nd documentary evidence that in combination are sufficient to establish each element ofan expenditure or use.

ner has failed to carry her burden ofshowing that the disputed deductions were ordinary and necessary expenses paid or incurred during 2007 in carrying on any trade or business, see sec. 162(a), or that she has met the substantiation requirements ofsection 274. We will allow no deductions other than those respondent allowed. - 6 - [*6] III. Additions to Tax Section 6651(a)(1) provides for an addition to tax in the event a taxpayer fails to timely file a return (determined with regard to any exte

ness use oftheir cars. We believe petitioners both used their cars, at least to an extent, in the conduct ofa trade or business. The records that they maintained, however, are not adequate to substantiate a deduction for car and truck expenses under section 274. Consequently, we sustain respondent's determination that petitioners are not entitled to deduct any car and truck expenses for 2008. -26- C. Travel On their 2008 Schedule C petitioners claimed, and respondent disallowed, a deduction for

Generally, unless precluded by section 274, the Court may estimate the amount of such an expense and allow the deduction to that extent.

To meet the heightened substantiation requirements ofsection 274, taxpayers must substantiate their claimed deductions through production ofrecords or other evidence that show the amount ofthe expense, the time and place ofthe use oflisted property, and the business purpose.

- 12 - [*12] Certain expenses described in section 274 are subject to strict substantiation rules.

Before section 274 was enacted, the Court could approximate the amount 9The travel expense deduction is for trips petitioner drove to: Atlanta, Ga; Toronto, Can.; St. Paul, Minn.; and St. Louis, Mo., and two trips to New Orleans, La. 1°The 8,504 miles that petitionerreported for some trips are excluded from his Schedule A because he was already allowed a

- 20 - Certain expenses described in section 274 are subject to strict substantiation rules.

We are not bound to do so under the so- called Cohan doctrine, which, ifthe enhanced substantiation requirements of section 274 do not apply, allows us to approximate the allowable amount ofa deductible exp nse that the taxpayercannot fully substantiate.

Neither party explains what specific expense disallowance resulted in the $12,409 adjustment. Because petitioners bear the burden of proof and they failed to convince us that respondent's determination is incorrect, we sustain respondent's determination. 2 . 1998 and 1999 Schedule C Other Expenses On the 1998 and 1999 Schedules C pet

Petitioner fails to meet his burden of proving that his writing activities qualified as a trade or business within the meaning of section 162(a)'.

She is not entitled to a deduction for vehicle expenses because she did not substantiate by the use ofa contemporaneous log or by any other reasonable means the number ofmiles traveled, the date, the place, and the business purpose ofsuch travel as required by section 274 and its corresponding regulation.

Section 274 Expenses Section 274(d) applies a more strict substantiation requirement for certain business expenses including, among other things, expenses for travel, meals and entertainment, gifts, and listed property (e.g., automobile expenses, cellular telephones, computer equipment, or any property ofa type generally used for purposes ofenterta

Furthermore, there has been no showing that either the S corporation or petitioner has satisfied the section 274 substantiation requirements with respect to deductions for these expenses.

Moreover, even though Congress imposed heightened substantiation requirements for certain deductions by enacting section 274, the,regulations thereunder allow a taxpayerto substantiate a deduction by reasonable reconstruction ofhis or her expenditures when records are lost throughno fault of the taxpayer.

Certain expenses specified in section 274 are subject to strict substantiation rules.

On brief, petitioner concedes that the claimed expenses in his 2007 Schedule C relating to travel, meals, and lodging "do not meet the substantiation requirements ofInternal Revenue Code Section 274." - 7 - was organized are performed.1° Jackson.v.

She is not entitled to a deduction for vehicle expenses because she did not substantiate by the use ofa contemporaneous log or by any other reasonable means the number ofmiles traveled, the date, the place, and the business purpose ofsuch travel as required by section 274 and its corresponding regulation.

Petitioner testified that he incurred license fees, including the engineering license related to his employment, that he attended a class on an unspecified date, and that he purchased tools and supplies for which he paid cash and id not have receipts. He testified that he had the license before 2006, and he has not clarified or establishe

Nothing in the record, however, suggests thatthe 1990 Ford or the 2004 Dodge is exempt from the strict substantiationrequirements ofsection 274 and it(cid:0)54c1orresponding regulation.

1.274-5A(b) (2), Income Tax Regs. Such expenses inòlude meals and entertainment expenses, travel expenses, and expenses related to an.automobile. Secs. 274 (d), 280F(d) (4). The strict sÈÊstÊntiation feguirements provide that a taxpayer sùbmit a contemporaneous record to establish that he meets the elements"of section-274(d). Se

ating certain expenses). r - 12 - Petitioners' table ofexpenses for each year in issue lists the category "travel". They provided no further substantiation for those expenses. Petitioners have failed to meet the strict substantiation requirements ofsection 274. See sec. 274(d); sec. 1.274-5T(a) and (b), Temporary Income Tax Regs., supra. Therefore, respondent's determination to disallow petitioners' claimed deductions for travel expenses is sustained. III. Section 72(t) Additional Tax Petitioner

aid or incurred during the taxable year in carrying on any trade or business". Whether an expense is ordinary is determined by time, place, and circumstance. Certain expenses may not be estimated because of the strict substantiation requirements of Ísection 274 (d). This "strict substantiation" rule overrides.the general rule of Cohan that we may estimate deductions where evidence is inadequate. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930) (estimation of deductions, bearing heavily

tain respondent's disallowance of the deduction for these expenses. C. Car and Truck Expenses Cars and trucks are "listed property" pursuant to.section 280F(d) (4). "[L]isted property" is subjected to the heightened I substantiation requirements of section 274 (d)'. Again, petitioner provided no substantiation with respect to these expenses. Indeed, petitioner was unclear as to whether (he used his vehicle for both business and personal use. Consequently, we sustain respondent's disallowance of

1.274-5T(a) and (b), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). Listed property includes any passenger automobile. Sec. 280F(d) (4) (A) (i). To satisfy the adequate records requirement of section 274 (d), the taxpayer shall maintain an account book, a diary, a log, a statement of expense, trip sheets, or simil

- 8 - To satisfy the adequate records requirement of section 274, a taxpayer must maintain records and documentary evidence that in combination are sufficient to establish each element of an expenditure or use.

"in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire", see sec. 280F(d) (4) (C), petitioner would be subject to the strict substantiation requirements of sec. 274 (d). Petitioner, however, has failed to show he meets the substantiation requirements of sec. 1.6001-1(a) and (e), Income Tax Regs., or to provide any basis for us to approximate a deduction under Cohan v. Commissioner, 39 F.2d 540, 543-544

t be sufficient evidence in the records to provide a basis for the estiinate. Vanicek v.a Commissioner; 85 T. C. 2731, 743 . (1985) . Certain expenses -may not be estimated under t he Cohan rule because of the strict substantiation - requirements of section 274 (a) . See sec . 280F (d) (4)e (A) ;, Sanford v. Comthissioner, 50 T.C. 823, 827-828 (1968)., affd. p r curiam 412 F.2d 201 (2d Cir. 1969). T e expenses to which section 274 (d) applies include, among oEher types, expenses for listed prope

ailed to proffer any such log at trial. 7Assuming arguendo that we had found that petitioner had carried his burden of establishing for his taxable year 2005 his entitlement to deductions under sec. 162(a) with respect to certain expenses subject to sec. 274 (d), petitioner would still (continued...) - 7 - We turn now to the addition to tax under section 6651(a) (1). Section 6651(a) (1) imposes an addition to tax for failure to file timely a tax return. Respondent bears the burden of production

Petitioner was unable to identify what portion, if any, of the "ATM" charges he considered business related, and he did not retain any records that might have substantiated as business expenses one or more of the listed "meals/entertainment" expenses in accordance with the requirements of section 274 (d) and the ·regulations thereunder.· - The 2008 analysis of credit card charges (also submitted to Ms.

Generally, unless precluded by section 274, we may estimate the amount of such an expense and allow the deduction to that extent.

ment in Attitude in 2002, and he claimed a capital loss carryover of $202,892 in 2003. He bases his claimed loss on credit card charges by hotels and restaurants, but he has failed to substantiate the business purpose of the expenses as required by section 274 (d) . Petitioner claims that the purpose of the travel reflected in the charges was for Rose and Giordano "to be traveling the country doing hair extensions". Petitioner's testimony suggested that Rose made little effort to start or operat

Within the limitations set by section 274 (d), if a taxpayer is unable to substantiate his deductions, the Court is permitted to estimate the deductible amount after the taxpayer has established that he incurred deductible expenses.

Generally, unless precluded by section 274, we''may estimate the amount of such a n expense and allow the deduction to that extent .

Under Section 274 Certain business expense deductions ,described(cid:127) ;in section-274 are subject to`strict rules of-substantiation. See. sec . 1 .274 5T(c), Temporary 'Income Tax Regs ., 50-Fed . Reg . 46016 ( Nov . 6, 1985). Section 274(d) .provides that no deduction shall be allowed with respect to : (cid:127)(a) Any traveling expense, including ,

274 does not define the term "facility". However, the legislative history reveals that the term "facility" "includes any item of real or personal property which is owned, rented, or used by a taxpayer in conjunction or connection with an entertainment activity", and includes, e.g., "yachts, hunting lodges, fishing camps, swimming pools, tennis

Generally, unless precluded by section 274, the Court may estimate the amount of such an expense and allow the deduction to that extent .

Section 274 (d)(4) provides that no deduction is allowed for listed property as defined by section 280F(d)(4) unless the taxpayer substantiates by adequate records or corroborative evidence (1) the amount of such expense, (2) the time and place of use, (3) the business purpose of the expense , and (4) the business relationship of the taxpayer to th

provided additional-substantiation for some o f I~'iher 2004 payments with copies of her account statements . Petitioner is entitled to deductions of $202-per month for ren t ,expenses for 2004 and 2005 .17 I III . Section- 212 Expenses Subject to Section 274 . In addition to satisfying the criteria for deductibilit y under section,212, certain expenses must also satisfy the stric t substantiation requirements of section 274(d) . Section 274(d) and section 1 .274-5T(a), (b)(2), and (6), Tempora

| To satisfy the adequate records requirement of section 274, a taxpayer must maintain records and documentary evidence that in - 8 - combination are sufficient to establish each element of an expenditure or use.

1930), those expenses listed in section 274 require more detailed and precise substantiation.

es the contribution by a contemporaneous written "Under Cohan v. Commissioner 39 F.2d 540, 543-544 (2d Cir. 1930), if a taxpayer -claims a deduction for a business expense and cannot fully substantiate it, the Court, except for expenses governed by sec. 274, may approximate the allowable amount. However, the taxpayer must provide reasonable evidence from which to estimate that amounti Vanicek v., Commissióner, 85 T.C. 731, 742-743 (1985). The lack of any evidence in this case precludes this Cour

United Stat'es, 245 F.2d 559, 560-561- (5th Cir 1957) .a Items described in section 274 are'subject to strict substantiation-rules.

If a claimed expense ( other than one subject to heightened scrutiny under section 274 ) is not fully substantiated, we are permitted to estimate the expense when we are convinced from the record that the taxpayer has incurred it.

In addition to satisfying the criteria for deductibility under section 162, certain categories of expenses must also satisfy the strict substantiation requirements of section 274(d ) in order for a deduction to be allowed .

Expenses subject to section 274 requirements may be substantiated by adequate records where the taxpayer maintains an account book, a diary, a'"log, .a statement of expenses, trip sheets, or similar records prepared contemporaneously with the expenditure supplemented by .other documentary evidence .

004 . These expenses included parking fees, equipment purchases for work, telephone expenses, and various costs associated with th e petitioners' purchase of a home in 2004 . Parking expenses are .subject to the strict substantiation requirements of section 274 . The record provides almost no detail as to the specific expenditures, beyond-petitioner's vague testimony about paying for parking for work-related court appearances . Considering petitioner's lack of records, we sustai respondent' s di

612. Assuming arguendo that petitioner's records were destroyed after he was prohibited from entering his room . in Brooklyn, he has not reasonably reconstructed any records as required by th e exception to .the strict substantiation requirement of section 274 . We may accept credible testimony of a taxpayer t o substantiate a deduction requiring strict substantiation when a casualty to the taxpayer's records has been established and .no documentation is available, but we are not required to do

Section 274 Expenses Certain business deductions described in section 274 are subject to strict rules of substantiation that supersede the doctrine in Cohan v . Commissioner, 39 F .2d 540 (2d Cir . 1930) .. See sec . 1 .274-5T(a) through (c), Temporary Income Tax Regs ., 50 Fed . Reg. 46014,(Nov . 6, 1985) . Section 274(d) provides that no 6 - ded

rsed Employee Business Expense s Section 162 permits a deduction for 'ordinary and necessary business expenses . To the extent the expenses are related to a vehicle or meals and entertainment, petitioners must meet the substantiation requirements of section 274 . The expenses petitioners claimed are primarily related to a claimed business use of their vehicles . Section 274(d) -6- requires that expenses related to listed property, which includes passenger automobiles used for transportation, be

274 (d) provides that no deduction shall be allowed for, among other things , traveling expenses , entertainment expenses , gifts, and expenses with respect to listed property (as defined in sec .

s have provided documenta ion for their Schedule E repair and maintenance expenses, but it s not perfect in al l respects ." However, petitioners' Schedule E repair and maintenance expenses are. not subject t he strict substantiation requirements of section 274 . Under Cohai v . Commissioner , 39 F.2d at 543-544, petitioners may deduct cost of their repair and "of particular note is the refusal to allow deductions for some items while allowing deductions for other items when all items were purch

274(d) ; see also sec .

Generally, unless precluded by section 274, the Court may estimate the amount of an expense and allow a deduction to that extent .

Generally, unless prevented by section 274, the Court may estimate the amount of an expense and allow the deduction to that extent .

1971) Section 274 further requires strict substantiation-by either adequate records or sufficient .- evidence of expenses with 'respect- to'listed ..property.as defined "in section 280F(d)(4), which includes the Dodge Dakota-in the instant case.? `The Chevrolet flatbed truck is excluded from the definition-`of listed-property under section-1 .274 5T (k)'

Petitioner must meet the substantiation requirements of section 274 (d) before he can deduct the cost of meals and entertainment on the Schedule C for MCS .

- 5 - 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 .

Nothing in the record suggests that petitioner has complied with the strict substantiation requirements of section 274 as to the property subject to that section .

ailed to demonstrate that the expenses were deductible business expenses rather than nondeductible personal expenses or they did not contain the detailed contemporaneous information necessary to satisfy the heightened substantiation requirements of section 274 . Discussion I . Burden of Proof The Commissioner's determination of a taxpayer's liability is generally presumed correct, and the taxpayer bears the burden of proving that the determination is improper . See Rule 142(a) ; Welch v. Helveri

Under this exception these expenses must be substantiated under section 274(d)(4) rather than section 274 (d) (1) .

.1.274-5T(a), Temporary Income Tax Regs ., 50 Fed . Reg. 4601 (Nov . .6, 1985) . Petitioner claimed a(cid:127)va iety f`deductions on his 2001 return, each-,of which . has it .own specific rules and requirements . Although we w ll adress each of them in turn, petitioner-is ultimately unableto establish' entitlement to any of- .t

Generally, unless prevented by section 274, the Court may estimate the amount of an expense and allow the deduction to that extent .

Generally, unless prevented by section 274, the Court may estimate the amount of an expense and allow the deduction to that extent .

To be “ordinary” the transaction which gives rise to the expense must be of a common or frequent occurrence in the type of business involved. Deputy v. Dupont, 308 U.S. 488, 495 (1940). To be “necessary” an expense must be “appropriate and helpful” to the taxpayer’s business. Welch v. Helvering, supra at 113. Additionally, the expenditure

" Under the applicable section 274 regulations, the Commissioner is authorized to prescribe rules under which optional methods of computing expenses, including per diem - 7 - allowances for ordinary and necessary ex enses for traveling away from home, may be regarded as satisfying the substantiation requirements of section 274(d) .

" Under the applicable section 274 regulations, the Commissioner is authorized to prescribe rules under which optional methods of computing expenses, including per diem allowances for ordinary and necessary expenses for traveling away from home, may be regarded as satisfying the substantiation requirements of section 274(d) .

" Under the applicable section 274 regulations, the Commissioner is authorized to prescribe rules under which optional methods of computing expenses , including per diem allowances for ordinary and necessary expenses for traveling away from home, may be regarded as satisfying the substantiation requirements of section 274(d) .

- 6 - Certain business deductions described in section 274 are subject to rules of substantiation that supersede the doctrine in Cohan v .

Generally, a claimed expense (other than those subjected to heightened scrutiny under section 274) may be deductible even where the taxpayer is unable to fully substantiate it, if there is an evidentiary basis for doing so .

Because petitioner's computer and peripheral equipment do not fall within the home office exception to section 274 under section 280F(d)(4)(B),2 they are listed property under section 280F(d)(4), and their deductibility is subject to the strict substantiation requirements of section 274(d) .

e items were “normal” jeans and work boots. There is no evidence that the items were unsuitable for general or personal wear, nor is there evidence that Mr. Marple did not 13 We note that expenses for meals are subject to strict substantiation under sec. 274, discussed supra note 9. Petitioners did not introduce any receipts or other documentary evidence substantiating Mr. Marple’s meal expenses. Petitioners’ failure to meet the substantiation requirements of sec. 274(d) for Mr. Marple’s meal ex

filed timely a petition. Held, further, P was not a statutory employee for 2000. Held, further, The majority of R’s deficiency determinations are sustained. P failed to meet the substantiation requirements of sec. 162, I.R.C., and where applicable, sec. 274, I.R.C., for most of the deductions, or portions thereof, that R disallowed. - 2 - Gary Lee Colvin, pro se. Daniel N. Price, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION WHERRY, Judge: This case is before the Court on a petition f

Cellular phones are included in the definition of "listed property" for purposes of section 274(d )( 4) and are thus subject to the strict substantiation requirements .

valid and controlling in this case . See Walliser v . Commissioner, 72 T .C . 433, 439 (1979) (sustaining the validity of section 1 .274-2(b), Income Tax Regs ., where the regulation was "squarely based on the language of the legislative history of section 274") . - 14 - F . Conclusion There is no dispute that, although petitioner received notice of the lien that respondent filed in Florida in October 2002, petitioner did not submit to respondent a request for an administrative hearing . Consist

r use * * * by adequate records or by sufficient evidence corroborating his own statement. Section 274(d) con- templates that a taxpayer will maintain and produce such substantiation as will constitute proof of each expenditure or use referred to in section 274. Written evidence has considerably more probative value than oral evidence alone. In addition, the probative value of written evidence is greater the closer in time it relates to the expenditure or use. A contemporaneous - 10 - log is not

Generally, unless prevented by section 274, the Court may estimate the amount of such an expense and allow the deduction to that extent.

Indeed, petitioner has made no attempt to show that he has met the stringent substantiation requirements imposed by section 274 and applicable generally to business-related travel and entertainment expenses.

Furthermore, business expenses described in section 274 are subject to rules of substantiation that supersede the doctrine of Cohan v.

r use * * * by adequate records or by sufficient evidence corroborating his own statement. Section 274(d) con- templates that.a taxpayer will maintain and produce such substantiation as will constitute proof of each expenditure or use referred to in section 274. Written evidence has considerably more probative value than oral evidence alone. In addition, the probative value of written evidence is greater the closer in time it relates to the expenditure or use. A contemporaneous log is not requir

Furthermore, business expenses described in section 274 are subject to rules of substantiation that supersede the doctrine of Cohan v.

Unfortunately for petitioner, Congress has passed section 274 with respect to traveling expenses (including meals and lodging while away from home), and listed property.

These summaries do not provide the substantiation required by section 274 for entertainment and travel expenses, such as the date and business purpose of each expense and the business relationship to the person being entertained.

Generally, unless precluded by section 274, the Court may estimate the amount of such an expense and allow the deduction to that extent.

Furthermore, business expenses described in section 274 are subject to rules of substantiation that supersede the doctrine of Cohan v.

These summaries do not provide the substantiation required by section 274 for entertainment and travel expenses, such as the date and business purpose of each expense and the business relationship to the person being entertained.

Section 274, however, limits deductions for entertainment and recreation that would otherwise be allowable unless it is established that the expenditures were directly related to or preceding a bona fide business discussion and were associated with the active conduct of a taxpayer's trade or business. See sec. 274(a)(1) (A). A deduction is allowed

xpenses on his 2001 return of which $6,760.35 is related to his truck and $2,086.63 is related to office equipment. 3 Respondent states that he does not raise the issue of compliance with the substantiation requirements of sec. 274(d), and therefore sec. 274 is not an issue. - 11 - As stated above, petitioner bears the burden of maintaining the records needed to establish his entitlement to deductions. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. To substantiate entitlement to a depreciation de

With respect to certain business expenses, section 274 supersedes the Cohan doctrine.

297 (deficiencies). 4 In one of its earliest decisions, the Board of Tax Appeals characterized its scope of review in deficiency proceedings as follows: When a taxpayer brings his case before the Board he proceeds by trial de novo. The record of the case made in the Internal Revenue Bureau is not before the Board except in so far

ed with deficient evidence, courts may resort to the rule of Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930)(the Cohan rule)24 and estimate the proper deduction amount. This rule is not available, however, when dealing with “listed property” under section 274. Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d Cir. 1969). Thus, we disallow petitioner’s claimed mileage deductions in full. 24 Although best known to tax lawyers for his rule, George M. Cohan was also a playwr

We have taken into consideration: (1) The fact that petitioner's records are incomplete; (2) some of petitioner's expenditures appear to be personal or nondeductible under section 274; (3) petitioner's records; and (4) petitioner's testimony,.

ver, must have a reasonable evidentiary basis. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985). Respondent asserts for the first time in his trial memorandum that certain of petitioner’s Schedule C deductions are also subject to the requirements of section 274. Section 274 supersedes the Cohan rule, see sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985), and imposes more stringent substantiation requirements for travel, meals and entertainment, gifts, and with respe

the record. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). Deductions claimed with respect to certain expenses are subject to additional substantiation requirements as provided under section 274. No deduction or credit shall be allowed under section 162 with respect to, among other items, any listed property, as defined under section 280F(d)(4), unless the taxpayer substantiates the expense. Sec. 274(d); sec. 1.274- - 16 - 5T(a),

d does not show that petitioner was engaged in a trade or business during 1999. In addition, with respect to the $312 in travel, $12,374 in car and truck expenses, and $2,018 in meals and entertainment, petitioners are subject to the requirements of section 274. Section 274(d)(4) provides that such deductions are not allowed unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement (A) the amount of such expense or other item, (B)

Generally, unless prevented by section 274, the Court may estimate the amount of such an expense and allow the deduction to that extent.

Except as otherwise provided in section 274,3 when the evidence shows that a taxpayer incurred a deductible expense, but the exact amount cannot be determined, the Court may “make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making.” Cohan v.

enses for 1995. Appeals cited as authority for the agreement the de minimis rule of the simplified production method of section 1.263A-2(b)(3)(iv), Income Tax Regs. The 1If, for example, an item of indirect cost were not properly substantiated under sec. 274, it would not be a proper cost under sec. 263A. See sec. 1.263A-1(c)(2), Income Tax Regs. - 20 - simplified production method may be elected for any trade or business as a method for determining costs allocable to ending inventories of produ

an tell you. But if it’s in here, it’s a business expense. * * * * * * * A * * * And again I state, business and personal are one and the same for me. Many of the items were charges at restaurants or hotels that were not substantiated as required by section 274. Petitioner merely reiterated the untenable claim that all of his activities were business related and all of his expenses were tax deductible. Inconsistent and Contradicted Claims In responding to discovery, petitioner claimed that the b

The disallowance was made on several grounds: Petitioners had not established that the sales activity was a trade or business which was entered into for profit within the meaning of section 183 and which had economic substance other than the avoidance of taxes.

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 with respect to an activity of a type generally considered to be entertainment, amusement, or recreation; or (c) the use of any “listed property”, as defined in section

ctivity are allowed only to the extent of the gross income - 14 - derived from the activity.2 Sec. 183(b)(2); Elliott v. Commissioner, supra at 973. As the result of our holding above, it is unnecessary for us to address substantiation issues under section 274. Reviewed and adopted as the report of the Small Tax Case Division. To reflect the foregoing, Decision will be entered under Rule 155. 2 We are uncertain whether the notice of deficiency allowed deductions to the extent of the reported gro

ument of where petitioner traveled, who he visited, or the business purpose of each trip. Many notations appear to be personal in nature. Even assuming petitioner had a trade or business, these records are not adequate to satisfy the requirements of section 274. We sustain respondent's determination as to this issue. Petitioners reported a $12,000 annual installment payment from the sale of their home and farm as income on their Schedule F, Profit or Loss From Farming, under "Sales of livestock,

A particular payment otherwise allowable as a deduction under section 162 or section 167 is not allowable unless any applicable substantiation re- quirements of section 274 are satisfied.

Generally, unless prevented by section 274, we may estimate the amount of such an expense and allow the deduction to that extent.

e were ordinary and necessary business expenses and that they were expended for the purpose designated. With respect to the meals and entertainment expenses, respondent also determined that Crestmark failed to meet the substantiation requirements of section 274. On brief, Crestmark concedes that the meals and entertainment deductions have not been substantiated. We conclude that Crestmark has also failed to establish the validity of its other claimed deductions. Section 162 generally allows a de

Section 274 supersedes the doctrine in Cohan v. Commissioner, supra. See sec. 1.274-5T(a)(4), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). A taxpayer is required to substantiate expenses for listed property by establishing the amount, time, place, and business purpose of the expense. See sec. 274(d). Even if such an expense would

ts such as cancelled checks, invoices and contemporaneously maintained notes will help corroborate oral testimony. Travelling expenses, including meals and lodging while away from home, are subject to a more rigorous substantiation requirement under I.R.C. § 274. These expenses require what is referred to as "adequate records" or by "sufficient evidence corroborating the taxpayers own statement" concerning (1) the amount of the expense; (2) the time and place of the travel; (3) the business purp

e were ordinary and necessary business expenses and that they were expended for the purpose designated. With respect to the meals and entertainment expenses, respondent also determined that Crestmark failed to meet the substantiation requirements of section 274. On brief, Crestmark concedes that the meals and entertainment deductions have not been substantiated. We conclude that Crestmark has also failed to establish the validity of its other claimed deductions. Section 162 generally allows a de

Except in the case of expenses subject to section 274, if the taxpayer's records are inadequate or there are no records, we may still allow a deduction based on a reasonable estimate.

Except in the case of expenses subject to section 274, if the taxpayer's records are inadequate or there are no records, we may still allow a deduction based on a reasonable estimate.

he boat (yacht is a misnomer as the vessel is 42 foot trailer-able boat) is used to entertain customers. As the boat is not docked in a slip, but is parked at his house, there are no monthly expenses related to maintenance. * * * * * * * Pursuant to Sec. 274 the boat is not depreciated for federal income tax purposes. Any expenses related to the entertainment of customers on the boat are out-of- pocket costs reimbursed to E.A. Helwig by the corporation or corporate credit card charges, both of w

In Robinson, this Court sustained respondent's disallowance of various expenses for failure to comply with section 274 and the accompanying regulations but, nonetheless, held that the taxpayer was not liable for the addition to tax for negligence under -- 77 -- section 6653(a), the predecessor to section 6662(a).

not award fees for these hours. Finally, petitioner was not the prevailing party on the travel expense issue. This issue was a relatively simple matter of whether petitioner could substantiate her travel deductions by adequate records as required by section 274. This issue was not addressed in petitioner's trial memorandum, nor is there any specific reference in the itemized statement petitioner received from her attorney concerning how much time he spent on it. Considering its simplicity, we fi

That a taxpayer cannot prove the exact amount of an otherwise deductible item is not fatal, because generally, unless precluded by section 274, we may estimate the amount of such an expense and allow the deduction to that extent.

n in full on the ground that the expenses were not ordinary and necessary within the meaning of section 162, and for lack of substantiation. As indicated above, travel expenses are subject to the more stringent substantiation requirements imposed by section 274. To substantiate a deduction under section 274(d), a taxpayer must maintain adequate records or present corroborative evidence to show: (1) The amount of the expense; (2) the time and place of the travel; (3) the business purpose of the e

Petitioners also failed to meet the section 274 substantiation requirements for his club dues for Club Terrasini and the Italian American Cultural Society, and for promotional expenses for watches bearing the Soldi logo.