Karen L. Thorpe - Page 8

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          provided her inventory did not substantially lose its value.5               
          However, petitioner asserts that at the end of 1994 there was               
          only a balance of $150 in inventory.6  Petitioner made no attempt           
          to substantiate her beginning and ending inventory figures.  We             
          do not find petitioner's calculations of cost of goods sold to be           
          reliable, because beginning and ending inventory figures were not           
          supported by evidence.  Consequently, petitioner may not reduce             
          her gross receipts by any amount in excess of that determined by            
          respondent in the notices of deficiency.                                    
               In the notices of deficiency for the taxable years 1993 and            
          1994, respondent disallowed various expenses related to                     
          petitioner's wholesale and consulting activities.  Respondent               
          determined that petitioner did not meet her burden of proof that            
          these expenses were actually incurred.                                      


               5This can be demonstrated by the following calculation:                

                    Beginning inventory 1993      $2,450                              
                    Purchases 1993 and 1994       6,313                               
                    Amount sold (at cost)         (2,000)                             
                    Ending inventory 1994         $6,763 (projected)                  

               This also assumes, though we do not decide, that                       
          petitioner's reported amount for beginning inventory was correct.           
               6At trial, petitioner's accountant testified that items sold           
          by petitioner were all sold to various customers at a price from            
          $2 to $10 greater than her cost for the items.  If petitioner did           
          sell the inventory at some level of markup, we note that the                
          ending inventory figure would be higher.                                    




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