Edward M. Fontanilla - Page 10




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          Petitioner reported $580 of gross receipts from this activity on             
          Schedule C, Profit or Loss From Business, and claimed $174 as the            
          cost of goods sold and $5,167 of business-related expenses, for a            
          net loss of $4,761.  Of the claimed expenses, $5,135 is for the              
          use of petitioner's automobile, including mileage, insurance, and            
          repairs.  Respondent disallowed these expenses in their entirety             
          because petitioner did not establish that the expenses were paid             
          or incurred during the taxable year and that they were ordinary              
          and necessary.                                                               
               As discussed above, a passenger automobile is listed                    
          property, and to substantiate a deduction attributable to listed             
          property a taxpayer must comply with the strict substantiation               
          requirements of section 274(d) and the regulations thereunder.               
          Petitioner did not provide this Court with any records related to            
          the use of his automobile.  Respondent is sustained on this item.            
               Petitioner claimed $174 as the cost of goods sold.  Gross               
          income does not include the cost of goods sold.  See sec. 1.61-              
          3(a), Income Tax Regs.  We think that it is very unlikely that               
          petitioner could have realized $580 of gross profits without                 
          incurring some cost for the magnets that he sold.  Thus, we allow            
          $100 as the cost of goods sold.  See Cohan v. Commissioner,                  
          supra.                                                                       








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