- 10 - competitor to bring a lawsuit. In general, the competition was such that petitioners' competitors could expect profits of between $.10 and $1 per carton. Competitors who were some miles away from the Illinois border marked up their cigarettes by 10 to 15 percent. Petitioners' Federal income tax returns for the years in issue were prepared by professional accountants, based upon information furnished them. The accountants did not conduct an audit of petitioners' business activities, nor did they establish other inventory or cash controls. For the years in issue, petitioners' Federal income tax returns reported gross sales from Nick's Liquors ranging between $8,535,458 and $9,054,086 per year. These returns reported taxable income from operations of $500,698 for 1990, $543,245 for 1991, and $531,549 for 1992. In each instance, the amounts reported represented gross margins on sales of approximately 6 percent. Respondent determined that petitioners had understated their taxable income. Respondent accordingly redetermined petitioners' income for the years in issue by utilizing the "percentage markup method". Respondent's method results in application of gross profit margins of approximately 26.8 percent for the years in issue. Respondent based that redetermination on margins in a report entitled, "Estimated Gross Margin as Percent of Sales, by Kinds of Business", printed in the Combined Annual and Revised Monthly Retail Trade reports issued by the U.S.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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