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petitioners that they would not be allowed to reopen their
business until they paid their payroll tax delinquencies and
filed their 1990, 1991, and 1992 Federal income tax returns.
The accounting firm of Faw, Casson, & Co., LLP (Faw),
prepared petitioners' 1990, 1991, and 1992 returns and filed them
on January 5, 1994. On each return, the activities of both
businesses are combined and reported under the name National
Distributors; accrual is designated as the method of accounting;
and cost is designated as the method of valuing closing
inventory. Petitioners failed to provide Faw with sufficient
information to calculate accurately gross receipts and cost of
goods sold. As a result, the return entries were based largely
on estimates (e.g., gross receipts were ascertained by analyzing
bank deposits). Each return contains the following statement:
Amounts contained in this return were obtained from the
best available information. In certain cases this
includes estimates. As additional / better information
becomes available this return may be amended.
On November 8, 1994, petitioners filed amended returns for
1990, 1991, and 1992. Each amended return contains the following
statement:
Taxpayers' original Form 1040 was prepared using
estimates where data was not available. Missing
information has been obtained and reviewed and the
original figures have been adjusted accordingly. * * *
Petitioners, on their amended returns, designated accrual as the
method of accounting and cost as the inventory method. On June
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