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of $500, expenses of $43,735, and a net loss of $44,235.4 No
legal or consultation fees were reported as income.
The following expenses were claimed as Schedule C deductions
on the 1999 and 2000 income tax returns:
4The negative gross income of $500 on Schedule C, Profit or
Loss From Business, for 2000 resulted from the reporting of
$1,200 in gross receipts and cost of goods sold of $1,700,
resulting in negative gross income of $500. Part III, Cost of
Goods Sold, of Schedule C for that year listed a beginning
inventory of $10,200, an ending inventory of $8,500, and cost of
goods sold of $1,700, thus the $500 in negative gross income
reported on Part I of the return. Petitioner was questioned at
trial as to how, as a consultant, he incurred “cost of goods
sold”, since he was an attorney and a doctor and was not in the
business of buying and selling merchandise. The revenue agent’s
report makes the same observation: “I do not understand why an
attorney would have cost of goods sold * * * attorneys sell a
service, they do not manufacture, nor purchase and resell a
product.” Petitioner’s explanation at trial was that he owned a
computer that had originally cost $1,700, and it was sold during
2000 for $1,200. The revenue agent disallowed the $1,700
adjustment for cost of goods sold. Petitioner conceded the issue
at trial. Because the transaction involved the sale of an asset,
it should have been reported on Schedule D, Capital Gains and
Losses. It follows that the $1,200 reported as gross receipts on
the Schedule C for tax year 2000 was not in fact gross receipts
from petitioner’s claimed business activity as a doctor/lawyer
consultant; therefore, petitioner realized no gross income from
his activity for either 1999 or 2000.
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