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is subtracted from gross receipts to compute gross income. Sec.
1.61-3(a), Income Tax Regs. Such costs are not deductions and,
therefore, are not subject to the limitations on deductions
contained in section 162. Max Sobel Wholesale Liquors v.
Commissioner, 630 F.2d 670, 671-672 (9th Cir. 1980), affg. 69
T.C. 477 (1977); see secs. 1.61-3(a), 1.162-1(a), 1.471-3, Income
Tax Regs. The treatment of the payments on the books of the
parties to the transaction, while of some evidentiary value, is
not controlling. Metra Chem Corp. v. Commissioner, 88 T.C. 654,
660 (1987) (citing Estate of Lehr v. Commissioner, 18 T.C. 373,
380 (1952)). Taxpayers bear the burden of proof with regard to
the cost of goods sold. Rule 142(a). Taxpayers must keep
sufficient records to substantiate the cost of goods sold. Sec.
6001; Wright v. Commissioner, T.C. Memo. 1993-27.
Eastimpex claims that the deposited amounts were the second
part of a two-tier payment system for goods it purchased from
Shin where the total of the two payments (the invoice price and
the deposited amount) equals the total cost of the goods.
Corporate petitioner therefore argues that the deposited amounts
should be considered the cost of goods sold. There is no dispute
regarding whether the invoice price represents the cost of goods
sold. Respondent contends that the deposited amounts were not
paid to Shin for goods and argues that Eastimpex and Shin used
the two-tier payment system to divert funds for the personal
benefit of individual petitioners. We find that Eastimpex has
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