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accounted for the rebates by debiting their accounts payable and
crediting purchases.
Petitioner kept track of the aging of receivables from
unrelated stores through monthly computer reports. Ralph Dunn,
petitioner's office manager, reviewed the accounts receivable aging
sheets. Accounts that were not collected were sent to collection
agencies. Mr. Dunn prepared the list of petitioner's accounts
receivable to be written off by each store and recommended the
amount of writeoffs. Petitioner's officers reviewed the list of
proposed writeoffs of accounts, which was sent to Mr. Lamprecht at
the end of each year. Generally, Mr. Dunn's recommendations were
accepted.
After petitioner wrote off the delinquent accounts from
unrelated entities, petitioner stopped selling merchandise to them.
Petitioner did not keep records to reflect the aging of
accounts receivable from related stores. Nor did Mr. Dunn
recommend writeoffs for any of the related stores.
Petitioner's Federal Income Tax Returns
On its Federal income tax returns for fiscal years 1991 and
1992, petitioner reported gross sales of $7,628,708.29 and
$7,736,795, respectively.
Notice of Deficiency
In the notice of deficiency, respondent determined that
petitioner's gross sales for fiscal years 1991 and 1992 were
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