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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
investment.
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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