Inez Meilak - Page 10

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          each year in issue is less than the charged tips alone as                   
          reported by Sandomenico on the Form 8027 for each year.  Due to             
          the inadequacy of the records produced by petitioner, it became             
          incumbent upon respondent to reconstruct petitioner's income for            
          the years in issue.                                                         
               When reconstruction of a taxpayer's income is necessary,               
          respondent has great latitude in the method of reconstruction               
          used.  Catalano v. Commissioner, 81 T.C. 8, 13 (1983), affd.                
          without published opinion sub nom. Knoll v. Commissioner, 735               
          F.2d 1370 (9th Cir. 1984).  The method of reconstruction is                 
          sufficient if the reconstruction is reasonable in light of all of           
          the surrounding facts and circumstances.  Schroeder v.                      
          Commissioner, 40 T.C. 30, 33 (1963).  This Court and other courts           
          have accepted the use of formulas in the reconstruction of tip              
          income.  Cracchiola v. Commissioner, 643 F.2d 1383 (9th Cir.                
          1981), affg. per curiam T.C. Memo. 1979-3 and Lombardo v.                   
          Commissioner, T.C. Memo. 1979-11.  A taxpayer may, however, point           
          out areas or specific instances in which the method used by                 
          respondent fails to reflect his or her true income.  Miller v.              
          Commissioner, 237 F.2d 830, 838 (5th Cir. 1956), affg. in part              
          and revg. in part T.C. Memo. 1955-112.                                      
               Petitioner argues that the amounts allocated to her by                 
          respondent are inherently erroneous because the gross receipts              
          allocated to her by Sandomenico are too high.  Petitioner asserts           
          Sandomenico employed numerous directly tipped employees who were            




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