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In contrast, and demonstrating the sharp distinction in how
petitioners supported a few expenses and left the Court to make a
leap of faith about the remainder, petitioners deducted under
marketing for KareMor $72,500 paid to Lifestyle Advantage in May,
June, and July of 1998 for what is characterized in the KareMor
ledger as “Sales Aides”. Respondent noted on opening brief the
absence of any evidence or testimony regarding these outlays. In
response, petitioners on reply brief offer the following: “And
in reference to Lifestyle Advantage * * * [the general ledger]
shows that this 1998 expenditure ($72,500) is for ‘sales aids’
which should not be surprising, given that Petitioners grossed
$19 million in that year.” Such a statement is utterly useless
to the Court in addressing any elements whatsoever of
deductibility. No further deduction is warranted for these
payments.
III. Cost of Goods Sold
On page 2 of its 1998 Form 1120S, U.S. Income Tax Return
for an S Corporation, Mayor included $747,535 of “Purchases” in
computing cost of goods sold. Respondent disallowed $123,250 of
“Purchases” with the explanation: “The year end accrued payable
to Arizona Natural Resources in the amount of $123,250 was never
paid, as there was a dispute over this debt. Thus the $123,250
is not deductible.” During 1998, Arizona Natural Resources,
Inc., manufactured for Mayor a line of cosmetics marketed as the
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