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figure using prevailing rates for similar types of architectural drawings.
According to petitioner, as proprietor of both businesses,
he took the following actions with respect to the plans: (1)
Mack McCoy drew-up the architectural plans; (2) Real McCoy agreed
to purchase the plans from Mack McCoy for $15,000; (3) Mack McCoy
delivered the plans to Real McCoy; and (4) Mack McCoy issued a
$15,000 bill to Real McCoy. Petitioner did not have any written
documentation supporting the purported transaction. Real McCoy
never paid Mack McCoy for the plans, and Mack McCoy did not
institute legal action against Real McCoy for nonpayment.
Petitioner stated that Real McCoy did not pay Mack McCoy because
“the entity never got going” and that Mack McCoy did not sue Real
McCoy because “there was nothing to gain.”
On petitioners' 1991 Schedule C for Real McCoy, petitioner
claimed a $15,000 deduction for the accrued cost of the plans.
He did not, however, include $15,000 of income on the Schedule C
for Mack McCoy. In the notice of deficiency, the Commissioner
determined that petitioners were not entitled to the $15,000
deduction because they failed to establish that they incurred an
ordinary and necessary business expense and because their method
of accounting for this deduction did not clearly reflect income.
Discussion
We begin our discussion by stating that respondent’s
determination is presumed correct, and petitioner bears the
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