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"'[T]axable income' means gross income minus the deductions
allowed". Sec. 63(a). Gross income is derived from gross
receipts less cost of goods sold. See Beatty v. Commissioner,
106 T.C. 268, 273 (1996); sec. 1.61-3(a), Income Tax Regs.
Furthermore, as pointed out above, the determination of the
taxable income of a partnership is essentially the same as with
an individual. Sec. 703(a). There is no indication that in
enacting the taxable income limitation in section 179(b)(3)(A)
Congress did not understand and intend these terms to have their
settled meaning.
In short, section 1.179-2(c)(2), Income Tax Regs., flows
directly from the requirements of section 179(b)(3)(A) and
(d)(8), is consistent with the statutes and their legislative
histories, and is valid. Therefore, respondent's determination
on this issue is sustained.
2. Section 6662-Penalty
Section 6662(a) imposes a penalty with respect "to any
portion of an underpayment of tax required to be shown on a
return" which is attributable to negligence or disregard of rules
or regulations. Sec. 6662(b)(1). The penalty is in an amount
"equal to 20 percent of the portion of the underpayment to which
this section applies." Sec. 6662(a).
Petitioners claimed on Schedule C a deduction in the amount
of $17,630 as "payroll taxes". Of that amount, $9,284 was
payment made for petitioners' 1993 Federal income tax liability.
Section 275(a)(1) provides: "No deduction shall be allowed for *
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