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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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