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Income From Cover Charges
Petitioners attack respondent’s reconstruction of
income from cover charges as arbitrary upon four grounds.
First, petitioners argue that respondent erred by assuming
that a $1 cover charge was collected on Thursday nights.
Second, petitioners assert that respondent’s assumption
that the number of customers paying cover charges was equal
to capacity on Thursdays and equal to 1-1/2 capacity on
Fridays and Saturdays is false. Third, petitioners argue
that the revenue agent failed to take into account the
hours on Friday and Saturday nights during which cover
charges were not collected. Finally, petitioners claim
that in respondent’s determination of unreported income
respondent failed to give them credit for the cover charge
revenue reported on Crabtree Investments’ tax returns.
As to petitioners’ first contention, we note that
respondent’s computation is based upon the admission made
by the individual petitioners during their initial audit
interview with the revenue agent to the effect that they
collected cover charges of $1 per customer on Thursday
nights. As to petitioners’ second and third contentions,
attacking respondent’s assumptions that 250 customers paid
$1 each on Thursdays and 375 customers paid $2 each on
Fridays and Saturdays, petitioners’ contentions are based
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