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Petitioners have not established that they are entitled to any
deduction for “Other rent”.
Supplies
On their 1995 return, petitioners claimed a $2,450 deduction
for supplies, all of which respondent disallowed in the notice of
deficiency. On brief, respondent concedes that petitioners
incurred $2,450 in expenses for materials used to rebuild
vehicles but contends that this amount should be added to
purchases in computing petitioners’ cost of goods sold, rather
than deducted as a current expense. We agree with respondent.
The evidence in the record indicates that the claimed
supplies expenses relate to petitioners’ rebuilding junked
automobiles for sale and that these expenses represented either
raw materials or supplies entering into the rebuilt automobiles
or direct labor relating thereto. These amounts are includable
in the cost of petitioners’ rebuilt automobiles, see sec. 1.471-
3(c), Income Tax Regs., and thus are not deductible as trade or
business expenses pursuant to section 162(a) but rather enter
into the calculation of petitioners’ cost of goods sold in
determining their gross income, see Beatty v. Commissioner, 106
T.C. 268, 273 (1996).
Small Tools
Petitioners contend that they are entitled to a $281
deduction for small tools. While small tools with a useful life
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