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the information that respondent had requested about the identity
of Lyell Metal’s customers.
During the audit, respondent found no corroborating evidence
of unreported income on the part of petitioners.
The following schedule reflects, for 1989 through 1992,
Lyell Metal’s claimed purchases of scrap metal by cash that were
disallowed by respondent, and Lyell Metal’s total cost-of-goods
sold as redetermined by respondent.
Cash Purchases Disallowed
by Respondent Cost-of-Goods Sold
Year for Lack of Substantiation as Redetermined by Respondent
1989 $4,641,192 $9,792,809
1990 3,869,186 9,268,763
1991 3,108,958 6,985,333
1992 2,764,247 6,845,968
Respondent’s adjustments to Lyell Metal’s claimed cost-of-
goods sold increased Lyell Metal’s alleged gross income for the
years in issue, and this alleged additional income was charged to
petitioners’ joint Federal income tax returns.
For 1989 through 1992, respondent also determined accuracy-
related penalties against petitioners for negligence relating to
the adjustments to Lyell Metal's cost-of-goods sold.
OPINION
In calculating gross income, taxpayers may offset gross
revenue with cost-of-goods sold. Metra Chem Corp. v.
Commissioner, 88 T.C. 654, 661 (1987); B.C. Cook & Sons, Inc. v.
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