(a) In general. In a manufacturing, merchandising, or mining business, “gross income” means the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources. Gross income is determined without subtraction of depletion allowances based on a percentage of income to the extent that it exceeds cost depletion which may be required to be included in the amount of inventoriable costs as provided in § 1.471-11 and without subtraction of selling expenses, losses or other items not ordinarily used in computing costs of goods sold or amounts which are of a type for which a deduction would be disallowed under section 162 (c), (f), or (g) in the case of a business expense. The cost of goods sold should be determined in accordance with the method of accounting consistently used by the taxpayer. Thus, for example, an amount cannot be taken into account in the computation of cost of goods sold any earlier than the taxable year in which economic performance occurs with respect to the amount (see § 1.446-1(c)(1)(ii)).
(b) State contracts. The profit from a contract with a State or political subdivision thereof must be included in gross income. If warrants are issued by a city, town, or other political subdivision of a State, and are accepted by the contractor in payment for public work done, the fair market value of such warrants should be returned as income. If, upon conversion of the warrants into cash, the contractor does not receive and cannot recover the full value of the warrants so returned, he may deduct any loss sustained from his gross income for the year in which the warrants are so converted. If, however, he realizes more than the value of the warrants so returned, he must include the excess in his gross income for the year in which realized.
[T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7207, 37 FR 20767, Oct. 5, 1972; T.D. 7285, 38 FR 26184, Sept. 19, 1973; T.D. 8408, 57 FR 12419, Apr. 10, 1992]
Notes of Decisions
Dixie Dairies Corp. v. Comm'r, 74 T.C. 476 (Tax Ct. 1980).
· cites it 6× “The first component is that Congress, by enacting section 162(c)(2) in its present form, 17 *152 intended to prohibit taxpayers from benefiting *491 from illegal payments such as these cash rebates.”
Metra Chem Corp. v. Comm'r, 88 T.C. 654 (Tax Ct. 1987).
· cites it 4× “5 Therefore, Metra Chem's cost of premiums constituted the cost of goods sold. Such costs are subtracted from gross receipts to arrive at gross income.”
Hachette USA v. Comm'r, 105 T.C. 234 (Tax Ct. 1995).
· cites it 10× “Cost of goods sold must be properly adjusted in accordance with the provisions of sec. 1.61-3 which provides, in pertinent part, that gross income derived from a manufacturing or merchandising business equals total sales less cost of goods sold.”
Alpenglow Botanicals, LLC v. United States, 894 F.3d 1187 (10th Cir. 2018).
“Treasury Regulations include "inventory price," "transportation or other necessary charges incurred in acquiring possession of the goods," "cost of raw materials and supplies," "direct labor" costs, and "indirect production costs" as some of the mandatory exclusions to gross…”
Molsen v. Comm'r, 85 T.C. 485 (Tax Ct. 1985).
· cites it 4× “The cost of goods sold during a year is determined by subtracting inventory on hand at the end of the year from the total inventory on hand at the beginning of the year and the cost of purchases. Schedule A, Form 1120.”
Int'l Bus. MacHines Corp. v. Dep't of Treasury, 852 N.W.2d 865 (Mich. 2014).
· cites it 2× “” 26 CFR § 1.61-3 further provides that gross income for manufacturing, merchandising, or mining businesses is “the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources.”
Rotolo v. Comm'r, 88 T.C. 1500 (Tax Ct. 1987).
· cites it 4× “Gross income, in a manufacturing business, means total sales less cost of goods sold (the gross profit from sales), plus any income from investments and from incidental or outside operations and sources. Sec. 1.61-3(a), Income Tax Regs.”
Rodriguez v. Comm'r, 2009 T.C. Memo. 22 (Tax Ct. 2009).
· cites it 2× “162-1(a), Income Tax Regs. Though the COGS is technically an adjustment to gross income and not a deduction, Rodriguez still has to substantiate *26 the amounts he claimed.”
Wayne Bolt & Nut Co. v. Comm'r, 93 T.C. 500 (Tax Ct. 1989).
· cites it 2× “, provides that "In a manufacturing, merchandising, or mining business, 'gross income' means the total sales, less the cost of goods sold.”
Mileham v. Comm'r, 2017 T.C. Memo. 168 (Tax Ct. 2017).
· cites it 2× “C.M. (CCH) at 1092 ; sec. 1.61-3(a), Income Tax Regs.”
Peninsula Steel Prods. & Equip. Co. v. Comm'r, 78 T.C. 1029 (Tax Ct. 1982).
· cites it 2× “Inventories are used to compute cost of goods sold during a particular year, 32 *126 and gross income or profit for the year is determined by subtracting cost of goods sold from gross sales.”
Primo Pants Co. v. Comm'r, 78 T.C. 705 (Tax Ct. 1982).
· cites it 2× “" Petitioner, as a manufacturer of men's pants, computes its income from sales by subtracting cost of goods sold from gross sales.”
— 26 C.F.R. § 1.61-3(a) — 1 case
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