Answer

Hello XXXXXXXXXXXX,

Cohan deals with income from 1919 (so it goes back a ways) and is a Second Circuit

decision that reversed the decision of the Board of Tax Appeals (predecessor to the Tax

Court) that a failure to keep records meant there was no deduction allowed. The court

held that if it was clear that deductions had been sustained, they could be estimated if

there was sufficient evidence to allow such estimation. That is, failure to follow the

recordkeeping requirements did not impose draconian results.

However, there are significant limits imposed by the courts on when Cohan may be used.

Although the Cohan rule is typically limited to cases in which a taxpayer is disputing the disallowance of a deduction by a taxing agency, the principle does provide authority for accepting a rational and reasonable estimate of tax-related amounts based on the best available evidence, when a taxpayer is unable to detail a precise amount with the documentation available.

So, if a taxpayer can show other evidence and exhibits a nature to constant record keeping then a reasonable estimate of a deduction can be accepted based on other information. Example, records of gas purchases are lost in a fire but the mileage of vehicle usd is accounted for, the examiner can accept amount for gas based on mileage and gas prices for year in general.

 

A Doubt as to Liability Offer will be accepted when there is a legitimate doubt as to whether all or part of the tax liability is owing. A Doubt as to Liability offer is submitted on Form 656-L.

Here is a link to the government site for information on offers in compromise and filing form 656 L

http://www.usdoj.com/656l.html

 

 

I sincerely hope this information is helpful,