David E. and Rebecca Newman - Page 6

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                  Petitioner claims that he was involved in the computer chip                          
            sales business, and that he is entitled to reduce his Schedule C                           
            gross receipts by the cost of the computer chips.  As an initial                           
            matter, we must determine whether petitioner was in the business                           
            of purchasing and reselling computer chips, or simply providing                            
            Lee with a source of capital and earning a return on his                                   
                  While the parties agree that petitioner and Lee had a                                
            business arrangement concerning the purchase and sale of computer                          
            chips, it is apparent that petitioner’s role in the arrangement                            
            was limited to that of an investor.  Lee had contacts with                                 
            manufacturers of computer chips and could obtain a supply of                               
            these chips to market to purchasers.  He did not, however, have                            
            the capital necessary to acquire the chips from the                                        
            manufacturers.  As a result, petitioner advanced funds to Lee,                             
            who, after purchasing the computer chips, returned the funds to                            
            petitioner with some specified rate of return.  Petitioner did                             
            not take possession of the chips nor maintain any sort of                                  
            inventory.  In addition, he was not involved in the actual sales                           
            of the computer chips.  Petitioner did not know the sales price                            
            of the computer chips or how much money Lee was making on the                              
            sales.  The only record petitioner maintained regarding this                               
            arrangement was the amount of money advanced to Lee and the                                
            amount of return he was to receive on the advanced funds.  In                              

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