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Revenue Agent Chang utilized the gross receipts reported by Ms.
Eagatatt.
Where taxpayers fail to maintain adequate books or records,
the Commissioner is entitled to reconstruct the taxpayers' income
through indirect methods. Holland v. United States, 348 U.S. 121,
134 (1954); Webb v. Commissioner, 394 F.2d 366, 371-372 (5th Cir.
1968), affg. T.C. Memo. 1966-81; Petzoldt v. Commissioner, 92 T.C.
661, 686-687 (1989). In the case herein, respondent utilized a
variation of the so-called percentage markup method which is a
permissible method of reconstructing income, see Bollella v.
Commissioner, 374 F.2d 96 (6th Cir. 1967), affg. T.C. Memo. 1965-
162; Bernstein v. Commissioner, 267 F.2d 879, 880 (5th Cir. 1959),
affg. T.C. Memo. 1956-260; Stone v. Commissioner, 22 T.C. 893, 905-
906 (1954), and has been applied in situations involving
restaurants, see Edgmon v. Commissioner, T.C. Memo. 1993-486;
DiLando v. Commissioner, T.C. Memo. 1975-243. We have previously
sustained deficiency determinations where the Commissioner has
applied the percentage markup method based on a percentage of gross
receipts. See Ginzburg v. Commissioner, 14 B.T.A. 324 (1928);
Klebanoff v. Commissioner, T.C. Memo. 1973-174.
Petitioners did not introduce any evidence to establish the
correct amounts of their income. Instead, Mr. Rungrangsi, in
questioning Revenue Agent Chang, attempted to challenge her basis
for using the percentage markup method and her failure to contact
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