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subsequent to the years at issue to show that the badges sold
were subject to customs duties and freight charges. Petitioner
further relies on the Harmonized Tariff Schedule to determine the
applicable percentages for badge sales.
The evidence shows that petitioner imported cloth badges
from Taiwan. The evidence further shows the amount of gross
sales and cost of goods sold other than customs duties, freight
charges, and other fees for the badges. It is also evident that
customs duties were charged to badge shipments in years after the
years here in issue. From this evidence, and relying somewhat on
the testimony of Mr. Lee, we conclude that customs duties and
freight charges were paid with respect to badges during the years
at issue. Petitioner contends, as with the garment sales, that
we simply multiply the sales price of the badges by the rate
shown on the Harmonized Tariff Schedule. Since there are two
rates that petitioner contends could be applicable from the
Harmonized Tariff Schedule, 8.4 percent for 100-percent rayon
woven embroidered badges with visible ground, or 16 percent for
100-percent rayon woven embroidered badges without visible
ground, petitioner has applied an average rate of 12.2 percent,
which calculates to customs duties allowable of $69,073.47 and
$123,890.14, for its fiscal years 1989 and 1990, respectively.
However, petitioner deducted on its tax returns only $33,318 and
$53,790 for freight and delivery of badges for its fiscal years
1989 and 1990, respectively. There is no separate deduction for
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