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food, mixed alcoholic beverages (mixed drinks), beer, and wine.
Petitioners recorded Classic Pub's sales of food, beer, wine, and
mixed drinks in handwritten monthly sales journals. These monthly
sales journals were provided to petitioners' accountant, who
prepared monthly profit and loss statements.
Tax Returns
Petitioners filed joint Federal income tax returns for the
years in issue reporting the following:
Classic Pub
Year Wages Sch. E Loss Taxable Income
1991 $31,119 1$6,673 $10,024
1992 30,200 3,104 20,471
1993 37,800 223,056 41,507
During these years, Classic Pub, Inc. filed U.S. Income Tax Returns
for an S Corporation (Forms 1120S), reporting the following:
Cost of Total Total Ordinary
Year Gross Sales Goods Sold Income Deductions Income (Loss)
1991 $294,214 $147,167 $147,276 $180,643 1($33,367)
1992 403,214 228,603 175,076 171,972 3,104
1993 414,649 203,864 226,633 205,677 220,956
1 For 1991, petitioners reported 20 percent of Classic Pub,
Inc.'s losses. The record does not reveal why petitioners reported
20 percent rather than 28.98 percent of Classic Pub Inc.'s losses.
2 The record does not reveal why for 1993 petitioners reported
$23,056 of income, rather than $20,956, as reflected on the K-1
from Classic Pub, Inc.
These amounts were based upon the bar/restaurant's monthly profit
and loss statements of income and expenses, which, in turn, were
based upon Classic Pub's handwritten sales journals.
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Last modified: May 25, 2011