Main Issue:
Substantiation / Oral testimony
Facts:
District Court determined there were no records of the hours worked on any given project or supplies used that involved research
District Court unwilling to accept estimates given by employees years after the fact
The case was appealed to the Federal Court of Appeals and ultimately remanded back to the District Court
Conclusion:
Appeals remanded the case back to the District Court indicating that the Cohan rule should be applied
Appeals noted that the District Court had not properly weighed the oral testimony and other evidence, including the institutional knowledge of the employees, in determining a fair estimate
After being remanded the case was settled out of court
Take-Away Point:
When applying the “Cohan” rule, the testimony must be credible
Taxpayers without detailed time records are allowed reasonable estimates
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