Ernest L. and Kathleen Newsome - Page 8

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            the cost of goods sold reported for either year included the cost                          
            of the newspapers that petitioner purchased from the Star                                  
            Telegram.  Petitioner estimated the amount of gross receipts                               
            reported on the Schedules C based upon the checks that he                                  
            received from the Star Telegram.                                                           
                  Revenue Agent Heidi Wilder (Agent Wilder) conducted the                              
            examination of petitioners' 1991 and 1992 Federal income tax                               
            returns. Agent Wilder used the actual charges reflected on the                             
            monthly circulation statements to determine petitioner's cost of                           
            goods sold for 1991 and 1992.  Petitioners agree that Agent                                
            Wilder accurately calculated the cost of goods sold for each                               
                  Agent Wilder used other information contained on the                                 
            statements to calculate petitioner's gross receipts for the years                          
            1991 and 1992.  First, she calculated an average evening "draw"                            
            number for each month by adding the evening "draw" numbers for                             
            Monday through Friday from the circulation statement for that                              
            month and dividing that figure by the number of weekday delivery                           
            days in the month.  She did the same for the morning "draws".                              
            Next, Agent Wilder calculated an average Saturday "draw" number                            
            for each month by adding the Saturday "draw" numbers and dividing                          
            that figure by the number of Saturdays in the month.  Agent                                
            Wilder then added the average evening "draw" figure to the                                 
            average morning "draw" figure to obtain an average daily "draw"                            
            number.  This figure was then subtracted from the average                                  

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Last modified: May 25, 2011