Raymond F. Kling and Barbara K. Kling - Page 23




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          Cir. 1986), affg. T.C. Memo. 1985-148; C.A. White Trucking Co. v.           
          Commissioner, 601 F.2d 867, 869 (5th Cir. 1979), affg. T.C. Memo.           
          1977-6.  Therefore, petitioners were required to substantiate               
          claimed deductions for cost of goods sold in excess of the amount           
          respondent allowed.  See, e.g., Manning v. Commissioner, T.C.               
          Memo. 1995-408; Wright v. Commissioner, T.C. Memo. 1993-27;                 
          Danner v. Commissioner, T.C. Memo. 1992-385; Chagra v.                      
          Commissioner, T.C. Memo. 1991-366, affd. without opinion 990 F.2d           
          1250 (2d Cir. 1993).                                                        
          A. Petitioners' Initial Arguments                                           
               Petitioners argue that Raymond did not make any profit from            
          his activity.  They assert that the members of the buyers group             
          paid the same amount for the supplies that Raymond had paid to              
          acquire the goods.  Respondent's agent confirmed that Raymond               
          sold the goods to the buyers group at cost.                                 
               Petitioners argue that since Raymond did not make a profit             
          from the buyers group activity, there was no income omitted on              
          their returns.  The flaw with petitioners' argument, however, is            
          that Raymond used the checking accounts for other transactions              
          besides the buyers group purchasing activity.  For example,                 
          although the transaction with Dietz and Megacards was unrelated             
          to the bulk buying for the buyers group, Raymond deposited the              
          payment from Megacards into and paid Dietz from the Ameritrust              
          account.  It is also apparent to the Court that Raymond used the            







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