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Petitioners also have produced bank reconciliations prepared by a
certified public accountant that indicate that the amounts
reported on petitioners' books for the years in issue support
their receipts and costs and expenses, as reflected on their
Federal income tax returns.
Petitioners' argument fails to take into account the
possibility that their books and bank deposits may appear to be
accurate, but still may not reflect all the cash receipts.
Respondent is entitled to insist that petitioners maintain
records in addition to books that only may be "apparently
accurate". Schwarzkopf v. Commissioner, 246 F.2d at 734. Nick's
practices of taking cash from the stores' proceeds to meet his
payrolls, to pay business expenses, and to provide for his
personal needs all provided ample opportunity for a failure to
record all the receipts taken in. Early during the years in
issue, Nick was properly advised to retain his cash register
receipts and "Z-tapes" before the years in issue. Retention of
these materials would have provided an objective measure of
petitioners' receipts. Doing so also would likely have provided
for the reporting of the proper amounts of income tax. Nick,
however, failed to follow that advice.
We conclude that the underpayments for the taxable years
1990, 1991, and 1992, to the extent that they relate to
understated profit margins, are attributable to negligence. With
regard to other underpayments, however, the record does not
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