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Leaf Corp.’s tax returns for 1993 and 1994 were rents from Buckroe
and income from the operation of a snack bar at the hall.
As part of the IRS examination, Revenue Agent Gross and other
agents interviewed between 15 and 20 workers at the bingo games
held at Buckroe. The revenue agents attempted to obtain records of
the bingo operations from the sponsoring organizations but were
unsuccessful. Consequently, the IRS reconstructed the income from
the bingo games held at Buckroe by the percentage markup method,
based on bingo supplies purchased for the games. The determined
profit was based, in part, on information obtained from the Bingo
Bulletin (a commercial publication for the bingo industry) which
published the sales prices for the various products sold during the
games and prize payouts.3 On the basis of the aforementioned
methodology, respondent determined the gross income, total
expenses, and net income from bingo operations at Buckroe for 1993
and 1994 as follows:
1993 1994
Gross receipts $979,080 $1,720,614
Expenses 859,123 1,502,540
Net income 119,957 218,074
After allowing a reduction in net income for “illegal payments
to workers” and after allowing payments to each of the sponsoring
3 The bingo games at Buckroe were advertised in the Bingo
Bulletin, as well as the prices charged for packages of bingo
cards and the prize payouts.
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