David E. and Rebecca Newman - Page 2

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                  After concessions,1 the issues for our consideration are:                            
            (1) Whether petitioners are entitled to offset gross proceeds                              
            reported on their 1991 and 1992 Schedules C, Profit or Loss From                           
            Business, by the amounts of $250,000 and $140,000, respectively,                           
            that they claimed as cost of goods sold; and (2) whether                                   
            petitioners are liable for the accuracy-related penalty under                              
            section 6662(a) for the 1991 and 1992 tax years.2                                          
                                         FINDINGS OF FACT                                              
                  The parties’ stipulation of facts and the exhibits are                               
            incorporated herein by this reference.                                                     
                  Petitioners resided at 455 Irwin Street, #201, San                                   
            Francisco, California, at the time their petition was filed.                               
            David E. Newman (petitioner) is an entrepreneur who has been                               
            involved in a wide range of business opportunities for the                                 

                  1 The parties filed a stipulation of settled issues, whereby                         
            petitioners conceded:  (1) They are not entitled to Schedule C                             
            secretarial expenses in the amount of $5,439 for the 1991 tax                              
            year; (2) they are not entitled to Schedule C meals and                                    
            entertainment expenses in the amounts of $73,554 and $12,122 for                           
            the 1991 and 1992 tax years, respectively; (3) they are not                                
            entitled to Schedule C charity expenses in the amount of $8,489                            
            for the 1991 tax year; and (4) $46,255 of their net operating                              
            loss carryback from the 1993 tax year to the 1991 tax year is not                          
            allowable.  The parties also agree that the adjustments in the                             
            notice of deficiency to petitioners’ 1992 self-employment tax                              
            deduction, 1992 itemized deductions, and 1991 and 1992 deductions                          
            for exemptions are computational adjustments and will be                                   
            determined after the remaining issues have been resolved.                                  
                  2 Unless otherwise indicated, all section references are to                          
            the Internal Revenue Code in effect for the taxable periods under                          
            consideration, and all Rule references are to the Tax Court Rules                          
            of Practice and Procedure.                                                                 

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