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Lyell Metal’s
Calculation of Purchases of Scrap Metal Lyell Metal's Reported
Year By Check By Cash Total Purchases Cost-of-Goods Sold
1989 $8,813,624 $5,637,214 $14,450,838 $14,434,001
1990 8,492,978 4,662,030 13,155,008 13,137,949
1991 6,722,992 3,745,733 10,468,725 10,094,291
1992 6,410,910 3,330,418 9,741,328 9,610,215
For 1989 through 1992, petitioners timely filed their joint
Federal income tax returns reflecting the pass-through tax
consequences of Lyell Metal’s S corporation status.
On audit, respondent disallowed for each year for lack of
substantiation approximately 83 percent of Lyell Metal’s reported
purchases of scrap metal by cash, and respondent determined the
tax deficiencies in dispute herein based on this disallowance.
The 17 percent of alleged purchases of scrap metal by cash that
respondent allowed apparently reflects respondent’s estimate of
Lyell Metal’s total cash purchases of scrap metal for amounts
under $200 per transaction.
For 1992, respondent disallowed 83 percent of Lyell Metal’s
reported purchases of scrap metal by cash even though Lyell
Metal's reported amount therefor was based not only on the
canceled checks made payable to cash but also on the copies of
the receipts and cash register tapes that were retained by Lyell
Metal for 1992 that reflected cash purchases. Respondent's
disallowance for 1992 apparently was based on the fact that the
canceled checks and copies of the receipts did not contain all of
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