- 13 - 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 andPage: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
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