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The issues for decision are:
(1) Whether petitioners maintained inadequate records of
income in the years 1990, 1991, and 1992, justifying the use of
an indirect method of reconstructing income. We hold that they
did not maintain adequate records.
(2) Whether respondent's use of the percentage markup
method of reconstructing petitioners' income for the years 1990,
1991, and 1992 was reasonable. We hold that it was.
(3) Whether petitioners have shown that respondent's
determinations as to their unreported income were incorrect. We
hold that they have, to the extent set forth herein.
(4) Whether petitioners incurred a deductible theft loss in
the amount of $19,769 in the taxable year 1991. We hold that
they did not.
(5) Whether petitioners may deduct as a trade or business
expense in the taxable year 1992 an interest payment of $393,024
made in connection with their liability for deficiencies in
income taxes for their taxable years 1986 and 1987. We hold that
they may.
(6) Whether petitioners are liable for an accuracy-related
penalty under section 6662(a) for each of the taxable years 1990,
1991, and 1992. We hold that they are.1
1 Petitioners have not disputed other issues set forth in
the notice of deficiency, and we consider those issues to be
conceded. Those issues relate to the disallowance of an expense
of $3,060 for two cash registers; the disallowance of
(continued...)
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