- 6 -
The Audit and Respondent's Reconstruction of Gross Sales
Revenue Agent William Bixler was assigned to audit
petitioners' 1991, 1992, and 1993 tax years. During that audit, he
discovered that for 1991 Classic Pub's monthly gross sales reported
on its MBAR were less than the State average for similar
establishments. Further investigation by Revenue Agent Bixler
revealed that Classic Pub, Inc. reported differing amounts of gross
sales on its Federal income tax returns, MBARs, State sales tax
returns, and profit and loss statements, and that none of the
reported gross sales were consistent with Classic Pub's daily sales
journals. The varying amounts of gross sales as reported in these
documents are reflected in the following table:
Documents on Which Gross Sales Were Reported
State Profit & Monthly Journals
Form Sales Tax Loss Sales Including Sales
Without Year 1120S MBAR Return Statement 9% Sales Tax 9%
Sales Tax
1991 $294,214 $313,667 $296,132 $291,656 $314,682 $288,699
1992 403,213 418,213 388,387 400,249 416,928 382,503
1993 414,649 441,717 --- 414,649 --- ---
Because of the lack of internal controls for income reporting
purposes and the inconsistencies between Classic Pub, Inc.'s Forms
1120S, MBARs, State sales tax returns, and profit and loss
statements, Revenue Agent Bixler decided to reconstruct Classic
Pub's sales of mixed drinks, beer, and wine. In doing so, he
employed an indirect method to determine Classic Pub's gross sales,
utilizing information and calculations provided to him by
petitioners, including Classic Pub's purchases of alcohol, prices
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011