- 13 -
1967), affg. T.C. Memo. 1965-162; Bernstein v. Commissioner, 267
F.2d 879 (5th Cir. 1959), affg. T.C. Memo. 1956-260; Kurnick v.
Commissioner, 232 F.2d 678 (6th Cir. 1956), affg. per curiam T.C.
Memo. 1955-31; Stone v. Commissioner, 22 T.C. 893 (1954). Under
the percentage markup method, gross receipts are determined by
adding a percentage to the cost of goods sold. The burden of
proof is on petitioners to show that respondent's method does not
clearly reflect income. Rule 142(a); see sec. 446.
Since petitioners did not keep books to show gross receipts
from sales, it was permissible for respondent to apply a markup
percentage to determine their gross receipts for 1992 and 1993.
In 1992, on their Schedule C, petitioners claimed supplies
of $1,200 and stated gross receipts of $6,100 (a markup of over
500 percent). Later, petitioners and respondent agreed that the
amount of purchases (cost of goods sold) was $29,236. On the
basis of the cost of goods sold, respondent asserted that
petitioners had gross receipts in 1992 of $48,677 (using the
markup of 66.5 percent reflected on petitioners' amended 1993
return).
In 1993, on their Schedule C, petitioners listed gross
receipts of $17,439 (a markup of 66.1 percent), and in their
amended return, they listed gross receipts of $102,000 (a markup
of 66.5 percent). As noted above, respondent conceded that the
cost of goods sold in 1993 was $61,250. On the basis of the cost
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