Interesting situation

[Questionguy101]

Taxpayer joined a network marketing company in 2007 and this is also the very first time in his life that he is being self-employed. He sold some of the products that he ordered from the company to his friends/relatives and consumed the rest himself.

Now the problem is that he did not keep track of the sales to his friends/relatives. He does know how much products that he has ordered from the company with the invoice/receipts to prove it. But he can only give you the percentages as to how much of the products that he has sold and how much that he has used himself. And he can only give you a percentage as to how much he has marked up the products when he sold them. For example:

He has the records to prove that he has ordered $3,000 of products last year. He told you he sold 25% of which to his friends/relatives and he consumed 75% of which himself. And he told you he marked up 20% when he sold the products. Based on simple calculations, his gross sale last year is:

Gross sale = $3,000 X 25% X 120%(20% mark up) = $900.

Can we use this number to report his gross sale on the schedule C? I honestly believe that would be the best way to do it under the situation.'

Of course, I have already told him that he must keep record every time when he makes a sale from now on.

[Zee]

It's hard to imagine that your client has kept no records whatsoever. How was he paid? Cash or checks? Didn't he provide his customers any kind of a receipt?

Your approach seems reasonable given the facts you presented. I'd just make sure I documented the lack of any records and the estimate and have the client sign on the notation for my files.