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goods it purchased, are either a part of the cost of those
purchases, which increases the costs of goods sold and the value
on a cost basis of opening and closing inventories, or are
separately deductible items. The parties further agree to
consider those costs as a part of the cost of goods sold
(purchases) during each year and a part of the value on a cost
basis of goods in opening and closing inventories. If
petitioner's books and records were sufficient to clearly show
the amounts of these items, there would be no issue. However,
because of the inadequacy of petitioner's books and records, the
amounts of these items must be reconstructed. The parties differ
as to how this reconstruction should be accomplished. Additions
to tax and a penalty, if any, will be determined based on the
income resulting from the proper amount of customs duties and
freight charges to be included in cost of goods sold for each of
the years at issue.
The parties have agreed to make adjustments to customs
duties and freight charges by using the following method.
Customs duties and freight charges for garments shall be the sum
of the customs duties and freight charges for purchases as shown
on the purchase invoices that correspond to documented sales or
are used to determine imputed sales. Customs duties and freight
charges for imputed purchases are to be at the duty rate and
freight cost applicable to the identical garment on which the
imputed purchase is based. Whether for garments or badges, the
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Last modified: May 25, 2011