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establish their entitlement to any cost of goods sold over the
amount conceded by respondent.
Generally, the taxpayer bears the burden of disproving the
Commissioner’s determination. Rule 142(a). Section 7491 does
not apply in this case to shift the burden to respondent because
the record shows that the examination of petitioners’ returns
commenced prior to July 22, 1998. See Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3001(c), 112 Stat. 726, 727. (In any event, petitioner did not
retain required records, did not cooperate with reasonable
requests for information, and did not introduce credible evidence
with respect to his income and deductions.)
The income of a sole proprietorship must be included in
calculating the income and tax liabilities of the individual
owning the business. Sec. 61(a)(2). The net profit or loss of
the business is computed on a Schedule C by subtracting the cost
of goods sold and ordinary and necessary business expenses from
the gross receipts. Sec. 1.61-3(a), Income Tax Regs. It is a
taxpayer’s responsibility to maintain adequate books and records
sufficient to substantiate all items on the tax return, including
the cost of goods sold. See sec. 6001.
Pascual reviewed all documentation that petitioners provided
to him to substantiate their cost of goods sold for 1995.
Petitioners did not provide evidence to substantiate an amount
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