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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,
Connecticut.
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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Last modified: May 25, 2011