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profit from its operation. Upon closing the station, petitioner
was able to return some, but not all, of his inventory. At the
time of trial, petitioner still owed suppliers for debts that
arose during the years in issue. Petitioner kept his books and
records for his business under the cash receipts and
disbursements method of accounting.
Introduction
In the notice of deficiency, respondent determined that
petitioner had unreported income in the amounts of $62,400 in
1993 and $43,918 in 1994. Respondent used the percentage markup
method, under which respondent applied a percentage markup to
petitioner’s cost of purchases to compute petitioner’s gross
receipts. When a taxpayer fails to keep adequate books and
records, respondent is authorized by section 446 to reconstruct
the taxpayer’s income using any reasonable method. See Petzoldt
v. Commissioner, 92 T.C. 661, 686-687 (1989); Rungrangsi v.
Commissioner, T.C. Memo. 1998-391. The percentage markup method
is, in general, a permissible method. See Bollella v.
Commissioner, 374 F.2d 96 (6th Cir. 1967), affg. T.C. Memo. 1965-
162; Rungrangsi v. Commissioner, supra.
Petitioner’s fuel sales are not at issue in this case.
Respondent’s determinations of unreported income were based on
sales of tires and auto parts, as well as chips, candy, soft
drinks, and tobacco. With respect to these items, respondent
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