Judge Ronald L (“Ingenuity”) Buch uses some ingenuity when applying the most-quoted approximation case of them all.

Kevin B. Cheam and Julie Lim, T. C. Memo. 2023-23, filed 2/27/23, ran a supermarket, but their records were almost nonexistent, even though they had five (count ’em, five) years to come up with them, T. C. Memo. 2023-23, at p. 4. IRS finally allows them their MoneyGram payouts and their Sched Cs on the trial, but for two (count ’em, two) of the years at issue, they have nothing to substantiate cost of goods sold. Their trusty preparer for those years is AWOL.

But to the rescue comes social worker and part-time tax preparer, whom I’ll call Taz. Taz prepared the Year Three return, and did keep records of items that could be included in COGS Although his spreadsheet showing same had some sketchy elements, which Judge Ingenuity Buch discards, the rest is reliable enough to be going on with.

“The [Year Three] spreadsheet is reliable. [Taz] assisted with …Supermarket’s bookkeeping and accounting for 2016 and prepared the [Year Three] return. Using the Year Three] spreadsheet, he kept track of monthly amounts paid to various vendors, which he determined from invoices and check registers. The total amount paid to vendors in the [Year Three] spreadsheet equals the cost of goods sold reported on the [Year Three] return.” T. C. Memo. 2023-23, at p. 5.

Spreadsheets prepared by Taz for Years One and Two are unreliable because he wasn’t on the job for those years and Kev and Julie have no back- ups.

Not to worry, Judge Ingenuity Buch is on the case.

“…given the nature of their business, it is clear that Mr. Cheam and Ms. Lim incurred costs of goods sold greater than zero, as determined by the Commissioner. Because the evidence for [Year Three] is reliable, we will supply an estimate for [Years One and Two] based on a ratio calculated from [Year Three] data. We have used percentages to estimate a taxpayer’s cost of goods sold, and will do so here. For [Year Three], the cost of goods sold was 31.4% of … Supermarket’s adjusted gross receipts. Thus, the allowable amount for costs of goods sold for [Years Two and Three] is 31.4% of adjusted gross receipts for each respective year.” T. C. Memo. 2023-23, at pp. 7-78 (Citation omitted).

Social worker and tax preparer: just the skills you want to prepare your taxes.