Michael F. Lambaiso and Judy D. Lambaiso - Page 10




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          Automobile Expenses                                                         
               Petitioners maintain that they are entitled to deduct $1,581           
          in unreimbursed automobile expenses incurred during 1991 in                 
          connection with Classic Pub's operation.  These expenses were not           
          claimed on their tax return.                                                
          Notice of Deficiency                                                        
               In the notice of deficiency mailed to petitioners regarding            
          their 1991, 1992, and 1993 tax years, respondent revised                    
          petitioners' allowable losses and income from Classic Pub, as               
          described above.  Respondent also determined a section 6662(a)              
          accuracy-related penalty for each of the years in issue.                    
                                       OPINION                                        
          Issue 1.  Determination of Classic Pub's Gross Sales                        
               The primary issue before us is whether petitioners had                 
          unreported income arising from Classic Pub during the years in              
          issue. In resolving this issue, we must determine whether Revenue           
          Agent Bixler's use of the percentage markup method in                       
          reconstructing Classic Pub's gross sales was proper and whether             
          discounts4 he applied in computing the amount of sales of                   
          discounted mixed drinks, wine, and beer were correct.                       



               4    A higher discount percentage for items sold at                    
          discounted prices benefits petitioners because it results in                
          lower total gross sales.                                                    





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