Basics for Courts Prerogative to Approximate Amounts

If a taxpayer establishes that he or she paid or incurred a deductible business expense but does not establish the amount of the expense, the court generally may approximate the amount of the allowable deduction, bearing heavily against the taxpayer whose exactitude is of his or her own making. (Cohan doctrine) However, for this rule to apply, there must be sufficient evidence in the record to provide a basis for the estimate. Certain expenses may not be estimated under the this rule because of the strict substantiation requirements. The expenses to which this rule does not apply include, among other types, expenses for listed property (e.g., automobiles, cellular telephones, computer equipment, or any property of a type generally used for purposes of entertainment, recreation, or amusement) and travel expenses.