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Assoc.), but no one from that accounting firm replied to
petitioner’s inquiry.
OPINION
As a general rule, the determinations by the Commissioner in
a notice of deficiency are presumed correct, and the burden is on
the taxpayer to show that the Commissioner’s determinations are
incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).3
Deductions are a matter of legislative grace; the taxpayer
bears the burden of proving entitlement to all deductions claimed.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial
Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
I. Schedule C--Adjustments
A business’s income is computed by taking into account its
cost of goods sold as well as a variety of expenses. Cost of goods
sold reduces (i.e., is subtracted from) gross receipts in
determining the business’s gross income. Sec. 1.61-3(a), Income
Tax Regs. Cost of goods sold is not treated as a deduction from
gross income and is not subject to the limitations on deductions
contained in sections 162 and 274. Metra Chem Corp. v.
Commissioner, 88 T.C. 654, 661 (1987). All amounts claimed as
3 Pursuant to sec. 7491, the burden of proof or of
production may be placed on the Commissioner in certain
circumstances for audits conducted after July 22, 1998. Sec. 7491
is inapplicable in this case because petitioners’ examination
commenced before July 22, 1998.
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