Nick and Helen Kikalos - Page 17

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          93 (3d Cir. 1928) (approving assertion of a deficiency based upon           
          the Commissioner's "observation of earnings made and taxes paid             
          by a corporation in a like business"), affg. 6 B.T.A. 570 (1927);           
          Giddio v. Commissioner, supra at 1532 (approving determination of           
          taxable income based upon Bureau of Labor Statistics report of              
          average cost of raising a family in New York).3                             
          III.  Petitioners' Evidence of Income                                       
               In this case, respondent had no quarrel with the amount of             
          petitioners' costs or expenses of operating Nick's Liquors.                 
          Respondent's differences with petitioners instead involve the               
          amount of their gross profit margins.  As we have held,                     
          petitioners have failed to show that respondent's determinations            
          are arbitrary or unreasonable.  Accordingly, the presumption of             
          correctness that attaches to respondent's determinations remains            
          in force.  Harbin v. Commissioner, 40 T.C. 373, 376 (1963).                 
          Petitioners thus bear the burden of proving that respondent's               
          determinations were erroneous.  To some extent, they have                   
          succeeded.  At trial, petitioners presented sufficient evidence             

               3    Our cases reflect a number of instances approving                 
          respondent's use of markup percentages based upon third-party               
          sources to determine taxable income.  See, e.g., Estate of Shuman           
          v. Commissioner, T.C. Memo. 1995-327 (use of gasoline station               
          markups based upon publications of Department of Energy and Oil             
          and Gas Journal plus competitors' prices); Biggs v. Commissioner,           
          T.C. Memo. 1985-303 (use of percentage markup based upon advice             
          of local plumbers' unions); Howse v. Commissioner, T.C. Memo.               
          1974-225 (use of percentage markup based upon reports of National           
          Sporting Goods Association).                                                






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