- 4 -
informed Revenue Agent Bacino that the preparer had utilized a
"margin ratio" methodology to estimate a significant number of
both the income and expense figures. The preparer informed Agent
Bacino that a "margin ratio" methodology is similar to a
percentage markup methodology whereby income is determined based
on the cost of goods sold and the percentage at which the seller
typically marks up the goods. However, given RAJ's inadequate
recordkeeping with respect to the cost of goods sold, Revenue
Agent Bacino found that the "margin ratio" methodology did not
accurately reflect RAJ's financial activity.
In conducting the examination of petitioners' individual
returns, Revenue Agent Bacino utilized bank deposits to
reconstruct petitioners' taxable income for the years in issue.
Upon review of petitioners' bank statements, Revenue Agent Bacino
determined that petitioners had made unexplained deposits to
their personal bank accounts substantially in excess of the
income reported on their tax returns for the years in issue.
Specifically, Revenue Agent Bacino determined that petitioners'
bank deposits exceeded petitioners' reported income by $200,713
for 1991 and by $136,063 for 1992.
To explain this discrepancy, petitioners initially informed
Revenue Agent Bacino that during the years in issue petitioners
were the recipients of a number of loans totaling approximately
$200,000. At a later time, petitioners informed Revenue Agent
Bacino that during the years in issue they had also received
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011