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reconstructing the taxable income of Pieces of Eight for the
years in issue, even though he was its bookkeeper. Ms. Murphy
and Mr. Louwers did assist respondent’s agent in the
reconstruction. After the reconstruction was completed,
respondent’s agent turned the records of Pieces of Eight over to
Ms. Murphy and Mr. Louwers. Ms. Murphy took the records to
petitioner’s store in Sarasota.
For 1987, based on an analysis of deposits into Pieces of
Eight’s bank account, checks drawn on that account, and other
expenditures made in connection with Pieces of Eight’s business,
respondent determined that petitioner and Ms. Murphy received
gross receipts from Pieces of Eight, incurred cost of goods sold
and other deductible expenses, and realized gross income from the
business in the following amounts:
Gross Cost of Goods Sold Gross
Receipts and Other Deductions Income
$279,944 $187,478 $92,466
Respondent also eliminated the $20,000 of wages reported on
the return as having been paid by Pieces of Eight, essentially
including them in the income of Pieces of Eight. Respondent
disallowed $8,816 of the home mortgage interest deduction claimed
on the 1987 return.
For 1988 and 1989, respondent determined petitioner’s income
from Pieces of Eight using a check spread or transcript of checks
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Last modified: May 25, 2011