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determined by making proper adjustments for opening and closing
inventory and purchases. Sec. 1.162-1(a), Income Tax Regs.
Petitioners did not determine their cost of goods sold for
1992 and 1993. Instead, they listed purchases from Abbey Road as
the deductible expense "supplies". Respondent concedes that
petitioners are entitled to cost of goods sold equal to the
amount of goods purchased during the year.
For 1993, petitioners and respondent do not agree on the
amount of goods purchased. On petitioners' 1993 Schedule C, they
claimed supplies of $10,500, and on their 1993 amended Schedule
C, they claimed supplies of $61,250. Petitioners now contend
that the cost of goods sold for 1993 was less than $61,250.
Respondent concedes that petitioners are entitled to cost of
goods sold of $61,250 in 1993. We sustain respondent's allowance
of cost of goods sold in 1993 of $61,250, as claimed by
petitioners in their amended 1993 return.
Issue 4. Markup Percentage and Gross Receipts
Taxpayers are required to maintain records, including the
documentation of transactions, expenses, etc. Sec. 6001. It is
well established that if a taxpayer's records are inadequate to
permit a verification of the returns or if the records are
unreliable, the Commissioner may determine the taxpayer's taxable
income by other reasonable means, including the percentage markup
method. See Bollella v. Commissioner, 374 F.2d 96 (6th Cir.
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