- 16 - their gross receipts, respondent reasonably and justifiably determined the deficiencies at issue using Department of Commerce gross margin statistics as the basis for the deficiency determinations. In doing so, respondent employed a form of the percentage markup method. Under the percentage markup method, gross sales are determined by adding a predetermined percentage of cost of goods sold. Bernstein v. Commissioner, 267 F.2d 879, 880 (5th Cir. 1959), affg. T.C. Memo. 1956-260. The courts have consistently approved the use of the percentage markup method as an acceptable means of computing a taxpayer's income. Webb v. Commissioner, supra at 377; Bollella v. Commissioner, 374 F.2d 96 (6th Cir. 1967), affg. T.C. Memo. 1965-162. Respondent's use of generalized statistics from Government reports is also permissible. There are longstanding acceptable methods of computing income that involve application of an objectively determined average that relates to the income- producing activity. See Avery v. Commissioner, 574 F.2d 467 (9th Cir. 1978) (approving the Commissioner's projection of taxpayer's income on the basis of isolated drug sales), affg. T.C. Memo. 1976-129; Cannon v. Commissioner, 533 F.2d 959 (5th Cir. 1976) (approving the Commissioner's assertion of deficiencies based upon an equal division of gambling proceeds between two gamblers when the contradictory testimony of each was unworthy of belief), affg. T.C. Memo. 1974-219; Bishoff v. Commissioner, 27 F.2d 91,Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
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