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other testimony. Respondent has not allowed any offset for these
amounts in his income reconstruction and contends that it cannot
be ascertained whether all or part of these amounts was already
deducted on Banner’s returns.
We disagree with respondent in part. Examined as a whole,
the Reconciliation Sheets produce a strong inference that
petitioners maintained them to keep track of their net unreported
cash from the business. The “part time” amounts were recorded
nearly as meticulously over a period of years as the totals from
the Meter Readings Sheets. Respondent’s reconstruction of
Banner’s income effectively treats the Reconciliation Sheets8 as
accurate insofar as they record cash receipts but disregards them
insofar as they record cash expenses that might reduce income.
An examination of Banner’s tax returns reveals that for some of
the years in issue, Banner took no deduction for “salary and
wages”. We conclude that for certain years in which Banner did
not claim a deduction for wages (Banner’s fiscal years ended
February 28, 1989 and 1990) a reasonable reconstruction of
Banner’s income requires an offset for the amounts recorded under
“part time”; namely, $28,914 in 1989 and $28,410 in 1990.9 We
8 Although respondent’s income reconstruction employed the
Meter Readings Sheets and not the Reconciliation Sheets, the
gross receipts figures on each are the same.
9 One month (March 1989) is missing from the Reconciliation
(continued...)
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