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We are unpersuaded by any of petitioners' arguments.6
Petitioners argue that the notice of deficiency was arbitrary
because of Revenue Agent Bixler's purported inaccurate conclusions
about Classic Pub's business and record keeping. We disagree. Not
only did petitioners fail to prove that Revenue Agent Bixler's
conclusions (which are the basis of respondent's determinations)
are arbitrary, but on the basis of the record before us, we are
satisfied that they are "reasonable in light of all surrounding
facts and circumstances". See, e.g., Schroeder v. Commissioner, 40
T.C. 30, 33 (1963). We found Revenue Agent Bixler's testimony
credible. We therefore conclude that the reconstruction of Classic
Pub's income through the use of the percentage markup method was
proper and that the allowance for alcoholic beverages, wine, and
beer sold at discount prices was realistic.
6 We mention two additional arguments made by
petitioners. First, petitioners contend that they overstated
Classic Pub's 1991 and 1992 gross sales (on the Forms 1120S) by
erroneously including State sales tax. Although respondent
acknowledges that, for income tax purposes, State sales tax
should not be includable in gross sales, petitioners have not
established that they actually overstated Classic Pub's gross
sales by including State sales tax. Petitioners failed to
reconcile the amounts of State sales tax allegedly included in
reported gross sales with the stipulated amounts reflected in
Classic Pub's various records.
Moreover, petitioners posit that two bartenders can pour
2,880 shots of liquor during a 2-hour period. In attempting to
prove this point, petitioners played a videotape (that they
prepared the night before trial) for the Court, in which two
Classic Pub bartenders poured shots of liquor. However, no
evidence was presented as to how many shots of discounted liquor
were actually poured and served on any given night.
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