Cohan rule

Cohan rule is a that has roots in the common law. Under the Cohan rule taxpayers, when unable to produce records of actual expenditures, may rely on reasonable estimates provided there is some factual basis for it.  The rule allows taxpayers to claim certain tax deductions on the basis of such estimates. The rule was adopted and laid down in the US by the Second Circuit in the case titled Cohan v. Commissioner, hence the name of the rule. The Second Circuit in the Cohan case held that "Absolute certainty in such matters is usually impossible and is not necessary; the Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making." 

It must be noted that the Cohan rule does not have a universal applicability. For example, the Cohan rule does not apply to items that are listed in Section 274(d) of the Internal Revenue Code.