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operating methods, adoption of new techniques, or abandonment of
unprofitable methods were made in a manner consistent with an
intent to improve profitability. See Engdahl v. Commissioner, 72
T.C. 659, 666-667 (1979); sec. 1.183-2(b)(1), Income Tax Regs.
a. Petitioner’s Record Keeping
While a taxpayer need not maintain a sophisticated cost
accounting system, the taxpayer should keep records that enable
the taxpayer to make informed business decisions. See Burger v.
Commissioner, 809 F.2d 355, 359 (7th Cir. 1987), affg. T.C. Memo.
1985-523. For a taxpayer’s books and records to indicate a
profit motive, the books and records should enable a taxpayer to
cut expenses, increase profits, and evaluate the overall
performance of the operation. See Abbene v. Commissioner, T.C.
Memo. 1998-330.
The record in this case confirms that petitioner kept
extensive records of his mining activities, including financial
and tax records such as spreadsheets, bank statements, canceled
checks, and invoices and operational records such as production
records, test reports, consultant reports, correspondence, and
related documents. Petitioner produced these records both to the
revenue agents who audited his tax returns for the years at issue
and to an accountant, Steven Klovanish, whom petitioner hired to
assist him in the audit. Although petitioner and respondent
disagree as to the organizational state of the records, Mr.
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