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Petitioners argue that Cal Ben’s net profit percentages as
reflected on Cal Ben’s filed and audited partnership tax returns
for later years (namely, 1994 and 1995) corroborate their claim
that during the years in issue Cal Ben’s actual profit margins
were much lower than those reflected by respondent’s audit
adjustments and that Cal Ben must have incurred and should now be
allowed significant additional business expenses during the years
in issue. We disagree.
During 1994 and 1995, Cal Ben was operated not as a
partnership but as a sole proprietorship owned by petitioner, and
Cal Ben was managed by others while petitioner was incarcerated
in Federal prison on his sentence for tax evasion and conspiracy.
Further, petitioner and Cal Ben incurred extraordinary legal fees
in 1994 relating to petitioner’s legal problems. Thus, Cal Ben’s
reported sales receipts and income for 1994 and 1995 are not
indicative of Cal Ben’s income in earlier years.
In light of the evidence in this case regarding, among other
things, Cal Ben's unreported sales, Cal Ben’s inadequate books
and records, the undisclosed Lloyds/Sanwa bank account in which
payments from unreported sales were deposited, the personal
purchases, and petitioner’s lack of cooperation, petitioners’
attempted use of general survey data regarding profit margins of
unrelated companies is of little persuasive value and is
rejected. Although used in appropriate cases -- particularly by
respondent where taxpayers have not filed income tax returns and
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