Jerry L. Crabtree - Page 24

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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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Last modified: May 25, 2011