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reconstruction was attributable to check cashing and not to the
sale of merchandise.
Petitioners called Patrick Schindele as an expert witness to
provide a report and to testify in support of their argument.
Mr. Schindele’s report contained a reconstruction of Gene’s gross
receipts using the percentage markup method. His approach,
however, was flawed in several respects. Because of petitioners’
inadequate records, Mr. Schindele’s report, in large part, is
based on assumptions. Many critical assumptions were based on
information provided by petitioners and not developed by Mr.
Schindele’s independent analysis.
Mr. Schindele had to make numerous assumptions in order to
reconstruct the amount that he believed represented Gene’s gross
receipts. The amounts used, however, could not be supported or
verified. He also assumed that only a small portion of
customers’ checks was for the purchase of merchandise.
Conversely, he assumed that either most checks were cashed at
face value or that nominal amounts of grocery purchases were
involved in the transactions. Because of petitioners’ lack of
records, the register tapes in particular, there is no way to
know whether Mr. Schindele’s assumption is correct.
We find Mr. Schindele’s assumption that the majority of
customers who paid by check bought only nominal amounts of
groceries and merely went to Gene’s for cash to be highly
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