United States v. McFerrin (2009)

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
• 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, testimony must be credible
• Taxpayers without detailed time records are allowed reasonable estimates