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received in tips during the evening, the average of her "payout"
to these other employees was $10 a day.
When petitioner arrived home after work each evening, she
would enter in a notebook the date, day of the week, number of
customers she had served, her hours worked, and the amount of
cash she had left in her pocket when she got home, which amount
she listed as tips. It was from these records that her return
preparer computed her tip income reported on her income tax
return in each of the years 1991 and 1992. The amount of tips
she computed from these records was $7,821.38 for 1991 and
$8,059.16 for 1992. These amounts are substantially the sums
resulting from an addition of the amounts that petitioner entered
in the notebooks she kept as a record of her tips. The system
petitioner used to record her tips was one that had been
suggested to her, and she had followed it for many years.
Respondent determined that petitioner had earned $11,340 and
$12,457 in tips for the years 1991 and 1992, respectively. These
amounts were determined based on a report of a revenue agent, who
had used the "McQuatters Formula" to determine the amount of the
tips. Respondent gave this name to the formula, because this
formula had been accepted in the case of McQuatters v.
Commissioner, T.C. Memo. 1973-240.2 In general, the formula is
2 It should be noted that the Court in McQuatters v.
Commissioner, T.C. Memo. 1973-240, did not approve the amount
determined by respondent by the formula in full, but reduced the
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