- 8 -
and other drink specials); and (6) subtracting an additional 6
percent to account for losses due to theft. Using this method, he
calculated that Classic Pub's gross sales from mixed drink sales
for 1992 and 1993 were understated by $21,888 and $28,313,
respectively. (Step (5) of his computation is at issue herein.)
Revenue Agent Bixler reconstructed the gross sales of Classic
Pub's beer and wine in a manner similar to his reconstruction of
mixed drink sales, with a few modifications.3 He reduced the
tentative gross sales by 10 percent to account for discounted wine
and beer prices. Utilizing this method, he calculated that Classic
Pub's income from beer and wine sales for 1991, 1992, and 1993, was
understated by $6,361, $33,257, and $38,147, respectively.
In determining an appropriate discount to apply to gross sales
for mixed drinks, wine, and beer sold at discount prices, Revenue
Agent Bixler discovered that in VABCB's audits of bars/restaurants,
VABCB discounted drink prices by reducing gross sales by 5 percent.
3 This reconstruction involved: (1) Determining the
potential amount of beer and wine that could be sold based upon
Classic Pub's documented purchases of beer and wine; (2) reducing
the potential draft beer and wine sold by 10 percent to allow for
spillage, and bottled beer by 5 percent for breakage; (3)
multiplying the adjusted potential amount sold by Classic Pub's
published prices in a ratio of 69 percent for the lower day
prices and 31 percent for the higher evening prices to arrive at
a tentative gross sales figure; (4) reducing the tentative gross
sales by 10 percent to account for discounted wine and beer
prices (happy hour and other drink specials); and (5) subtracting
an additional 6 percent to account for losses due to theft.
(Step (4) of his computation is at issue.)
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Last modified: May 25, 2011