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Petitioner signed a lease for retail space in the mall in
August 1994, and paid a rent deposit of $3,750. During 1994,
petitioner paid $15,964.41 for cabinets, shelving, and a cash
register--all of which he intended to use in the store. During
1994, petitioner purchased $56,217.79 in inventory (model trains
and related items). Most of the inventory petitioner purchased
were items manufacturers advertised heavily in the fall of 1994,
in the hope of selling them in November and December of that
year. Manufacturers did not advertise those items after 1994;
they then began advertising items which they hoped to sell during
1995. In 1994, petitioner spent $1,226.80 for advertising,
$106.05 for commissions and fees, $731.80 in interest, $3,750 in
advance rent, $417.74 for supplies, $72 for taxes and licenses,
$83.63 for utilities, and $92.45 for books and publications.
Unusually heavy rains from September through December 1994
delayed the opening of the mall until April 1995. The commercial
space which petitioner planned to lease was not available for
occupancy during 1994. In April 1995, petitioner began occupying
the commercial space in the mall.
Petitioner sold a few inventory items to acquaintances and
family during 1994. From November 1994 through April 1995,
petitioner stored all of the remaining inventory in his home.
OPINION
Respondent disallowed petitioners' claim for cost of goods
sold on Schedule C on the ground that petitioner did not sell or
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