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otherwise dispose of the inventory during 1994, nor did
petitioner offer the inventory for sale to customers in 1994.
Respondent also disallowed petitioners' Schedule C deductions
claimed for depreciation, rent, and other expenses, on the
grounds that petitioner had not yet begun carrying on a trade or
business and that organizational or startup expenses must be
capitalized and deducted beginning in the year that the taxpayer
begins carrying on the trade or business.
Cost of Goods Sold
The cost of goods purchased for resale, with proper
adjustment for opening and closing inventories, is deductible
from gross sales in computing gross income. Sec. 1.162-1(a),
Income Tax Regs. Cost of goods sold generally is not allowable
for goods which have not been sold or otherwise disposed of
during the taxable year. Jones v. Commissioner, 25 T.C. 1100,
1103 (1956), revd. on other grounds 259 F.2d 300 (5th Cir. 1958).
Petitioner made no sales to customers during 1994; thus he is not
entitled to a deduction for cost of goods sold in that year.2
Petitioner contends that the inventory became worthless
during 1994. Although not framed as an inventory accounting
issue, it appears that petitioner is essentially contending that
he should be allowed to use the lower of cost or market method of
2 Petitioner did realize less than $100 from casual sales
to friends and acquaintances; however, due to an oversight,
petitioner did not report the income from these sales on his 1994
Federal income tax returns.
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