-19-
fact that the number of saunas changed may not have affected the
total number of employees in any year and does not show that
respondent's determination was arbitrary. However, as discussed
at paragraph B-3-b below, we agree in part with petitioners that
more of petitioners' 1983 expenditures were made with funds they
had before 1983 than allowed by respondent.
Respondent also determined that petitioners had $40,000 in
cash on hand on December 31, 1983, 1984, 1985, 1986, and 1987.
The daily sheets for the 4 months that were admitted in evidence
show that petitioners' average monthly gross receipts were about
$40,000. Based on that, Hughes reasonably estimated that
petitioners earned $40,000 in cash each month from their Tokyo
Sauna businesses during the years in issue.
Petitioners point out that a senior agent who was teaching
respondent's agent interview techniques testified that he
suspected that petitioners made about $25,000 per month.
However, he also said that this estimate was not based on the
investigation in this case. His thoughts on this matter are made
irrelevant by respondent's determination which was the result of
an investigation in this case.
We conclude that respondent's determinations are not
arbitrary.
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