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in gross receipts, $64,576 for cost of goods sold, and $42,496 of
expenses (including $15,947 for business use of home), for a
total net loss of $11,231.
The other Schedule C relates to an “Automobile construction”
business operating under the name “Shrike Cars”. This Schedule C
reports no gross receipts or sales, $374,885 for cost of goods
sold,2 and $73,235 in expenses (specifically, advertising of
$24,464, travel of $42,469, and meals and entertainment of
$6,302), for a total loss of $448,120.
Taking into account the above wages and losses, as well as a
$13,440 Schedule E loss from the S corporation Marketing Concepts
Group, Inc., and other income items not pertinent here,
petitioners’ Form 1040 reports adjusted gross income (loss) of
2 Cost of goods sold is allowable as an offset to gross
income in the case of a manufacturing, merchandising, or mining
business, but not a service business. Hahn v. Commissioner, 30
T.C. 195, 197-198 (1958), affd. 271 F.2d 739 (5th Cir. 1959);
sec. 1.61-3(a), Income Tax Regs. However, even where otherwise
appropriate, cost of goods sold generally is not allowable with
respect to goods that have not been sold or otherwise disposed of
during the taxable year. Jones v. Commissioner, 25 T.C. 1100,
1103-1104 (1956), revd. on other grounds 259 F.2d 300 (5th Cir.
1958); Bernard v. Commissioner, T.C. Memo. 1998-20. Because
petitioners in any event reported no gross receipts for Shrike
Cars and offered no evidence indicating that any goods were
disposed of by the venture, and because the parties did not
distinguish at trial or on brief between the various components
of the Shrike Cars loss, we shall treat the $374,885 amount as a
claim for additional business expenses under sec. 162. See
Keegan v. Commissioner, T.C. Memo. 1997-511 (considering reported
cost of goods sold to be a claim for sec. 162 expenses).
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