Schaefer v. Commissioner

Holding

Taxpayers who fail to substantiate claimed business expenses with adequate records or sufficient corroborating evidence cannot rely on the Cohan rule to estimate deductions and bear the burden of proving entitlement under section 162 and the section 274 substantiation rules.

Facts

The taxpayer claimed deductions for travel, meals, entertainment, and other business expenses without contemporaneous records or receipts. The Commissioner disallowed most of the claimed deductions and assessed accuracy-related penalties under section 6662.

Reasoning

The Tax Court reiterated that section 274(d) imposes heightened substantiation requirements for travel, entertainment, and listed property and that the Cohan estimation rule cannot override the statutory substantiation regime. Where records are inadequate and testimony is uncorroborated, the deductions must be denied.