Jan and Corinne Mejnartowicz - Page 3

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               Respondent determined a deficiency and a penalty for                   
          negligence under section 6662(a) in petitioners’ 1995 Federal               
          income tax of $5,746 and $1,149, respectively.                              
               The issues are whether petitioners are entitled to                     
          deductions on Schedule C, Profit or Loss From Business, for (1)             
          casual labor ($1,200), (2) cost of goods sold ($8,000),2 and (3)            
          insurance ($2,298), and whether petitioners are liable for the              
          negligence penalty under section 6662(a).  At the time the                  
          petition was filed, petitioners resided in Stratford,                       
               The relevant facts may be summarized as follows.  During               
          1995 petitioner Jan Mejnartowicz (petitioner) operated a plumbing           
          and heating business as a sole proprietorship.  On the Schedule C           
          pertaining to the plumbing and heating business petitioner                  
          reported the following:                                                     

          2    The cost of goods sold is subtracted from gross receipts to            
          arrive at gross income.  Such costs are technically not                     
          deductions and are not subject to limitations under secs. 162 and           
          274.  Metra Chem Corp. v. Commissioner, 88 T.C. 654, 661 (1987).            
          Nonetheless, any amount claimed as a cost of goods sold must be             
          substantiated, and a taxpayer must maintain records sufficient              
          for this purpose.  Xuncax v. Commissioner, T.C. Memo. 2001-226.             

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