Jack S. Morris and Dorothy Morris - Page 12




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          as a common-law employee, as opposed to an independent contractor           
          or statutory employee.                                                      
               On balance, considering the record and weighing all of the             
          factors, we conclude that petitioner was a common-law employee              
          and not an independent contractor.  Since petitioner was not an             
          independent contractor, he therefore was not a statutory                    
          employee.  See sec. 3121(d)(3); Lickiss v. Commissioner, T.C.               
          Memo. 1994-103.  Petitioner is not entitled to report gross                 
          income and claim expenses on Schedule C.  Accordingly, we hold              
          for respondent.                                                             
          2.  Cost of Goods Sold                                                      
               The cost of goods purchased for resale in a taxpayer’s                 
          business is an offset to gross receipts in computing gross                  
          income.  See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 661             
          (1987); Max Sobel Wholesale Liquors v. Commissioner, 69 T.C. 477            
          (1977), affd. 630 F.2d 670 (9th Cir. 1980); Thorpe v.                       
          Commissioner, T.C. Memo. 1998-123; sec. 1.61-3(a), Income Tax               
          Regs.  Although cost of goods sold is not a deduction and,                  
          therefore, is not subject to the limitations on deductions, any             
          amount allowed as cost of goods sold must be substantiated.  See            
          sec. 6001; Ranciato v. Commissioner, T.C. Memo. 1993-536; sec.              
          1.6001-1(a), Income Tax Regs.                                               
               Petitioner subtracted $5,914 in 1996 and $5,544 in 1997 for            
          cost of goods sold in IBC’s business.  For the same reasons as              






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