Ted W. Gleave - Page 14

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               Kenmore reported on Schedule L of each of its tax returns              
          for its fiscal 1980, 1981, and 1982 a balance on line 18, loans             
          from stockholders, as shown in table 2.                                     
                                       Table 2                                        
          Item                          1980        1981       1982                   
          Beginning of year        $14,632        $4,481    $113,250                  
          End of year                   4,481     113,250      99,771                 
          Net increase or (decrease)  (10,151)    108,769   (13,479)                  
               Respondent received Kenmore’s tax returns on the following             
          dates:  Kenmore’s fiscal 1980 tax return on June 1, 1981;                   
          Kenmore’s fiscal 1981 tax return on February 4, 1982; and                   
          Kenmore’s fiscal 1982 tax return at some time after March 4,                
          1983.                                                                       
               The notice of deficiency in Kenmore’s docket, dated April              
          13, 1984, was mailed on or about that date, less than 3 years               
          after Kenmore filed its tax returns for all the years in issue.             
          Income                                                                      
               In the notice of deficiency respondent determined Kenmore’s            
          taxable income for its fiscal 1981 and its fiscal 1982 by using             
          the bank deposits method and an analysis of checks disbursed,               
          based on at least three sources of information, as follows:  (1)            
          Kenmore’s one-write system, (2) Kenmore‘s bank deposit tickets              
          and canceled checks, and (3) a box of receipts for cash payments,           
          which box Kenmore gave to respondent.  Tables 3 (fiscal 1981) and           
          4 (fiscal 1982) show, as to the components of respondent’s                  




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