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Cir. 1993), affg. 94 T.C. 126 (1990); Douglas v. Commissioner,
supra.
In the instant case, the unreported income is by definition
grossly erroneous. It is not clear whether petitioner is arguing
that there was an overstatement of cost of goods sold in this
case. In any event, on the record in this case, it appears that
Mr. Womack was in the business of rendering services, primarily
lawn care services for vacation-home owners. The Court cannot
find that Mr. Womack maintained inventories of goods or
manufactured, produced, or purchased goods for resale. Secs.
1.61-3(a), 1.162-1(a), Income Tax Regs. The Court cannot find
that Mr. Womack's property services business involved cost of
goods sold. Compare LaBelle v. Commissioner, supra, that
involved an automobile dealership and Velinsky v. Commissioner,
supra, that involved the production of a music video for a
customer.
In order for the disallowed business expenses to be grossly
erroneous items, petitioner must demonstrate that those expenses
had no basis in fact or in law. Mr. Womack possessed no
understanding of the preparation of the tax returns. Petitioner
did not call Ms. Stroup, Mr. Wade, or respondent's revenue agent
to testify. Petitioner has presented no proof that any of the
disallowed expenses were not incurred; i.e., had no basis in
fact.
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