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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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