David E. and Rebecca Newman - Page 7

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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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