- 15 - however, and not of the Commissioner. Mendelson v. Commissioner, supra at 523. II. Respondent's Use of the Percentage Markup Method We must find petitioners' gross profit for each of the years at issue. Their gross profit is the difference between the price at which petitioners sold their inventory and their cost of purchasing that inventory. Gross profit may be expressed in terms of dollars, but gross profit is also often expressed in terms of percentages--either "margin" or markup". "Margin" refers to gross profit as a percentage of the price at which petitioners sold their inventory. "Markup" refers to gross profit as a percentage of the cost incurred by petitioners to purchase that inventory. Margin and markup are related terms, and, if we know a specific example of one, we can determine the other. For example, a gross profit margin of 20 percent means that the markup is 25 percent and vice versa. In this case, respondent employed the "percentage markup" method to determine that petitioners had underreported their income. In the proceeding before us, however, each side has attempted to prove its case by demonstrating the profit margins at which petitioners, or other retailers, sold their merchandise. Because the parties have made their arguments in terms of profit margins, we shall use that approach as well. Here, because of petitioners' failure to retain records ofPage: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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