- 17 -
Proc. 2001-10, sec. 4.02, 2001-1 C.B. at 273. For a cash method
taxpayer, the cost of such inventoriable items are deductible
only in that year, or in the taxable year in which the taxpayer
actually pays for the inventoriable items, whichever is later.
Id.
CGS is not treated as a deduction 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).
However, any amount claimed as CGS must be substantiated, and
taxpayers are required to maintain records sufficient for this
purpose. Sec. 6001; Nunn v. Commissioner, T.C. Memo. 2002-250;
Wright v. Commissioner, T.C. Memo. 1993-27; sec. 1.6001-1(a),
Income Tax Regs. Where taxpayers do not have adequate records,
but where the record suggests that they clearly incurred an
offset to gross income, courts may estimate the offset based on
the evidence. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
On Schedule C of petitioners’ 2000 joint Form 1040, Mrs.
Jackson reported only $327.79 of gross receipts and claimed CGS
of $19,887.57 for Hansie Productions. Petitioners offered into
evidence substantiation for inventory, i.e. 1,000 copies of
Champions of Change and 56 copies of Howling Against the Wind,
totaling $2,885.41. On brief, respondent conceded that Mrs.
Jackson “produced documents substantiating that she paid
$19,677.00 to purchase copies of novels that she authored.”
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
Last modified: March 27, 2008