Jerry L. Crabtree - Page 19

                                       - 19 -                                         

             organized.  Furthermore, the records were not complete.                  
             The auditor was unable to find journal tapes and the cash                
             register tapes for the 3 sample months that she initially                
             chose, and was forced to select different months.  The                   
             report of the sales tax audit states that “the accounting                
             records flow through to the financials without a hitch.                  
             However, the bar business is mostly cash and income is                   
             easily hidden from normal view.”  The auditor found that                 
             the deposit slips for the business show that deposits                    
             consisted mostly of checks.  She found that to be unusual                
             because bars are typically high cash businesses.  The                    
             auditor noted in the audit report that “The taxpayer did                 
             not use due care in reporting all sales and deliberately                 
             hid income.”                                                             
                  On the basis of the foregoing, we find that respondent              
             was justified in using an indirect method of reconstructing              
             income.  The percentage or unit markup method is an                      
             acceptable method of reconstructing a taxpayer’s income.                 
             See Langworthy v. Commissioner, T.C. Memo. 1998-218;                     
             Stewart v. Commissioner, T.C. Memo. 1990-264 (citing                     
             Tunningley v. Commissioner, 22 T.C. 1108 (1954); Stone                   
             v. Commissioner, 22 T.C. 893 (1954)).                                    

Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011