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5, 1995, petitioners filed their 1993 return, on which they
designated cash as the method of accounting and marked the "Does
not apply" box when asked to identify the inventory method. Most
of the entries on the 1990, 1991, and 1992 amended returns and on
the 1993 return were estimates based on Faw's work papers. In
April of 1995, respondent assigned petitioners' case to Revenue
Agent Eric Brown. Agent Brown issued Information Document
Requests for a variety of documents and work papers, including
financial statements, general ledgers, books of original entry,
inventory records, bank statements, canceled checks, deposit
slips, cash register tapes, and purchase invoices. Petitioners
did not provide financial statements, contemporaneous books of
original entry (other than for 1993 ending inventory), deposit
slips, or cash register tapes. Petitioners did provide copies of
bank statements, canceled checks, a disorganized assortment of
purchase invoices, and work papers that Faw prepared. Agent
Brown requested information from vendors that sold goods to
petitioners, but received only documents relating to guns sold to
petitioners in 1992 and 1993.
After reviewing the documents that petitioners maintained
and that Faw created to prepare petitioners' returns, Agent Brown
requested a clarification of how petitioners arrived at the
ending inventory figure on petitioners' 1993 return. In a letter
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