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Initially, he relied upon VACBC's 5-percent allowance in
reconstructing the gross sales of Classic Pub's mixed drinks, beer,
and wine. However, after learning from petitioners that Classic
Pub ran more discounted drink specials than an average
bar/restaurant, he raised the allowance to 20 percent for
discounted mixed drinks, and 10 percent for discounted beer and
wine sales.
In light of Classic Pub, Inc.'s status as an S corporation,
respondent determined that Classic Pub's understatement of mixed
drinks, beer, and wine sales for the years in issue flowed through
to petitioners as unreported taxable income as follows:
1991 1992 1993
Classic Pub's
income on Form ($33,367) $3,104 $20,956
1120
Classic Pub's
mixed drink
understatement --- 21,888 28,313
Classic Pub's
beer & wine
understatement 6,361 33,257 38,147
Adjustments/
concessions 11,449 14,042 (9,699)
Corrected income/loss
available for distribution (15,557) 72,291 77,717
Allocation of
income/losses 28.98% 100% 100%
Corrected Classic Pub
income/loss distributed to
petitioners (4,508) 72,291 77,717
Income/losses from
Classic Pub reported on
Form 1040 (6,673) 3,104 23,056
Petitioners' understatement 2,165 69,187 54,661
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Last modified: May 25, 2011