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and content of mixed drinks, beer, and wine, happy hour and
promotional prices, and hours of operation.2 Revenue Agent Bixler
subsequently subtracted the gross sales reported on Classic Pub
Inc.'s tax returns from the figures he determined Classic Pub, Inc.
should have reported on the returns; the difference represented
Classic Pub's understated sales for each year in issue.
Specifically, Revenue Agent Bixler computed Classic Pub's total
gross sales of mixed drinks for 1992 and 1993 by: (1) Determining
the potential number of drinks that could be sold from the amount
of liquor available for consumption based upon Classic Pub's
documented liquor purchases; (2) reducing the potential number of
drinks sold by 10 percent to allow for spillage; (3) multiplying
the adjusted potential number of drinks sold by Classic Pub's
published price list in a ratio of 69 percent for the lower day
prices and 31 percent for the higher evening prices (the lower day
prices were in effect for 11 of Classic Pub's 16 hours of operation
while the higher evening prices were in effect for the remaining
hours of operation) to arrive at tentative gross sales; (4)
increasing the tentative gross sales to reflect beverages that were
sold for an extra charge; (5) reducing the tentative gross sales by
20 percent to account for discounted mixed drink prices (happy hour
2 Revenue Agent Bixler considered the entire week's
discounted beverage prices (rather than solely the Wednesday and
Friday happy hours) in formulating a discount allowance for mixed
drinks, wine, and beer.
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Last modified: May 25, 2011