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addition, the joint venture agreement between petitioner and Lee
referred to the arrangement as an “investment”.
Furthermore, petitioners’ Schedules C are inconsistent with
the contention that petitioner was in the business of selling
computer chips. Petitioners’ Schedules C do not reflect the
gross receipts from the sale of the computer chips. Rather, they
merely reflect a portion of the profit that was realized by Lee
upon the resale of the computer chips and subsequently paid to
petitioner as a return on his investment. Accordingly, we find
that petitioner was merely a source of capital for Lee, and was
not a merchant with respect to the computer chips. Therefore,
petitioner cannot treat the $250,000 and $140,000 amounts as
costs of goods sold in 1991 and 1992, respectively.
We note that even if we were willing to reach the conclusion
that petitioner was engaged in the sale of computer chips and
acquired chips for resale in 1991 and 1992, petitioners have
failed to substantiate the costs of good sold and we are unable
to make an estimate. Section 6001 requires that a taxpayer
liable for any tax shall maintain such records, render such
statements, make such returns, and comply with such regulations
as the Secretary may from time to time prescribe. Petitioners
admit that “No testimony or other evidence has been presented as
to any specific costs,” yet claim that we can make a reasonable
estimate of petitioners’ cost of goods sold based on Cohan v.
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