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conducted a bank deposits analysis of petitioners’ accounts.
After allowing for nontaxable transfers, Pascual determined that
petitioners had unreported gross receipts deposited into their
bank accounts in each of the years in issue.
Petitioners did not provide complete records of Mena’s
expenses, instead turning over various incomplete and disorderly
receipts and documents. To calculate Mena’s cost of goods sold,
Pascual relied on two documents provided by petitioners. Pascual
reviewed an ARCO Products Company, Product Sales for Customer
spreadsheet that indicated how much gasoline was sold to Mena’s
and a Summary of Items Collected from ARCO Productions Company.
Pascual determined the cost of goods sold by calculating the
amount of gasoline and other items sold based on these two
documents and substantiating invoices.
Pascual also reviewed Mena’s daily cash log of gasoline
sales for all 3 years. Pascual added the amounts from the log on
his adding machine, keeping a copy of the tape and returning the
original log to petitioners. Subsequently, petitioners disputed
Pascual’s tape totals for 1995 and again provided the daily log
sheets. Before resubmitting the daily log sheets to Pascual,
petitioner altered the amounts on the logs and made erasures.
During the audit, Pascual questioned whether petitioners
received gross receipts from automobile repairs. Petitioner told
Pascual that Mena’s conducted smog checks and engaged in tuneups
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