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those repair parts were given to petitioner without consideration
or in the form of a loan repayment.
Petitioner has not shown that the repair parts were
merchandise held for sale to customers in the normal course of
its business. Accordingly, respondent’s determination that
petitioner’s 1992 beginning inventory was overstated is
sustained.
Expense Items
A. Findings of Fact
1. Equipment Purchase
During 1991, petitioner purchased equipment from Traylor
Brothers for $22,250 and deducted the cost of the equipment on
its 1992 tax return. Respondent determined that petitioner was
not entitled to expense the cost of equipment but that the cost
should be capitalized and depreciated.7
2. Miscellaneous Expense
For its 1992 tax year, petitioner claimed a deduction for
miscellaneous expense items in the total amount of $15,204.
Respondent determined that petitioner failed to establish that
the entire amount was for ordinary and necessary business
expenses, disallowing $11,997 of the $15,204 claimed deduction.
7 Petitioner claimed depreciation in the amount of
$3,214.29. Respondent, however, determined that the correct
depreciation deduction should have been $4,500.16 and made the
necessary upward adjustment.
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