James J. Lencke and Janene B. Lencke - Page 7

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          for less than the price petitioners had marked on the item, they            
          adjusted that item's price accordingly.  None of their                      
          merchandise was sold below cost.                                            
               Usually, petitioners left on Friday morning when they were             
          going to a Saturday show.  Once they arrived at the show, they              
          unloaded the merchandise and set up their tables.  The shows were           
          generally held on Saturday and Sunday and lasted 7 hours each               
          day.  On Sunday evening they packed the merchandise that was not            
          sold into their truck and returned home.                                    
               Petitioners did not hire an accountant to assist with the              
          preparation of Red Caboose's books and records.  They did not               
          have a traditional bookkeeping system for the activity.  Red                
          Caboose's records were kept in the same way Mr. Lencke had                  
          previously kept his insurance business records.  To keep track of           
          merchandise sold during a show, petitioners dictated descriptions           
          of the items sold into a hand-held tape recorder.  Once they                
          returned home, they listened to the tape and made a note of the             
          amount of money received and the items sold at each show.  During           
          1990 and 1991, petitioners recorded the amount and nature of Red            
          Caboose's sales in their personal appointment book.  During 1992,           
          they prepared a tally sheet for each show indicating which items            
          were sold and the amount of money received at each show.6                   

          6  Petitioners testified that Red Caboose's sales were                      
          recorded in their personal ledger during the years in issue.                
          However, the stipulation of facts to which the parties agreed               
                                                             (continued...)           




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