matters is usually impossible and is not necessary, the Board should make as close an approximation as it can.” In general, the Tax Court has interpreted this ruling to mean that in certain situations “best estimates” are acceptable in order to approximate expenses. The Cohan Rule is a discretionary standard and can be used to support a reasonable estimate of compliance requirements.
State agencies may allow owners to reconstruct records when the situation warrants, consider incomplete or imperfect documentation, and accept credible oral testimony to determine the owner/taxpayer’s overall compliance with the requirements of IRC §42.
Example 1: Incomplete Documentation
A couple’s current income recertification was timely signed by the wife, but the husband’s signature is missing because he is on active military duty and stationed out of the country. The husband’s income is included in the recertification and the reporting instructions for his overseas assignment are included in the file. The state agency may consider the unit in compliance, even though the husband’s signature is missing.
Example 2: Reconstructing Evidence
The tenant’s income recertification was timely completed and signed. The summary records are in the file, but the income verification from the employer is missing. The state agency may allow the property manager to perfect the documentation.
There are times, due to taxpayer-specific circumstances, when records may not exist or are incomplete. In such cases, oral testimony may be the only evidence available. Therefore, oral statements made by the owner to the state agency represent direct evidence that must be considered. Although self-serving, uncontradicted statements that are not improbable or unreasonable should not be disregarded.
Example 1: Plausible Oral Testimony
During a compliance review, an issue involving the income certification for a household was noted. However, the tenant had moved out and could not be located. The manager remembers discussing the item with the tenant, but there is no third party that can corroborate the manager’s statement. If the manager’s statement is plausible, the oral testimony can be considered sufficient.
The degree of reliability placed on an owner’s oral testimony should be based on the credibility of the owner and surrounding circumstantial evidence supporting the owner’s testimony. The following concepts are helpful when evaluating oral testimony.
Oral evidence should not be used in lieu of available documentary evidence
If the issue involves specific recordkeeping required by law, then oral testimony alone
cannot be substituted for necessary written documentation
Revised October 2009