- 6 -
such a basis, any allowance would amount to unguided largesse.
Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).
On their Schedule C, petitioners reported a beginning
inventory of $37,835, purchases during the year of $1,062, and an
ending inventory of zero, resulting in a cost of goods sold of
$38,897. Petitioners reported a zero ending inventory because
they sold all of the inventory of Spanky's during the year at
issue in the process of terminating the business.
In support of their claimed cost of goods sold, petitioners
submitted various invoices and canceled checks referencing
purported inventory purchases made during the years 1996 and
1997. In support of inventory purchases made prior to 1996,
petitioners submitted their 1995 Schedule C filed for Spanky's,
along with copies of an Internal Revenue Service (IRS) Income Tax
Examination Changes, and a closing agreement from an IRS Appeals
Officer in connection with an audit of petitioners' 1995 Federal
income taxes (the 1995 audit documents). Petitioners contend
that the information contained in the 1995 audit documents is
tantamount to respondent's admission of the accuracy of
petitioners' reported 1995 beginning inventory as well as some
1995 inventory purchases made in connection with Spanky's.5
5 On their 1995 Schedule C filed in connection with
Spanky's, petitioners reported a beginning inventory of $35,646,
purchases of $7,920, ending inventory of $36,621, and cost of
(continued...)
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