- -10
remainder of the claimed cost of goods sold primarily because of
lack of substantiation. The record shows that some items which
were not allowed were amounts expended in 1991 rather than 1990.
There is an indication in the record that most of the other
disallowed items were claimed to be related to production of the
video.
Petitioner contends that the holding of Lawson v.
Commissioner, T.C. Memo. 1994-286, is applicable to this case.
In Lawson v. Commissioner, supra, we held that the overstatement
of cost of goods sold created an omission from gross income.
Similarly, in LaBelle v. Commissioner, T.C. Memo. 1986-602, we
held that there was an omission from gross income where there was
an overstatement of the cost of goods sold.
As we explained in Lawson v. Commissioner, supra, cost of
goods sold is taken into account in computing gross income and is
not an item of deduction. See also Metra Chem. Corp. v.
Commissioner, 88 T.C. 654, 661 (1987).
The basis of our holding that the disallowance of items
claimed as cost of goods sold results in an omission from gross
income is that since the origin of the income tax cost of goods
sold has been taken into account in computing business gross
income and is not an item of deduction. See the discussion in
LaBelle v. Commissioner, supra, in which we pointed out that
section 6013(e), prior to its amendment by the Tax Reform Act of
1984, contained a special definition of gross income that
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011