Martin and Barbara Schachter - Page 13

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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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