Hans C. Sherrer - Page 12




                                        -12-                                          
          line, and a "Net Bid" line.  The entries under each category                
          provide little information beyond quantities and dollar amounts.            
               Mr. Sager used the bid sheets to estimate petitioner's                 
          income in the following way.  Mr. Sager examined the dollar                 
          amount entered on the "Profit" line on each of the seven bid                
          sheets, as a percentage of the amount entered on the "Net Bid"              
          line.  Mr. Sager then looked for other potential sources of                 
          profit, such as a 5-percent "Weather Factor" included in the                
          "Labor" amounts, and 2- to 5-percent factors applied to certain             
          amounts in the "Materials" category.  Taking all these factors              
          into account, Mr. Sager concluded that a reasonable profit                  
          percentage for petitioner's plumbing business would be 11.14                
          percent of gross revenues.                                                  
               All other calculations in Mr. Sager's report (with the                 
          exception of a few "Statistical Projections" discussed below)               
          depend on this 11.14 percent estimated profit factor.  In fact,             
          Mr. Sager's calculations of petitioner's "gross profit" for 1989-           
          92 are nothing more than the gross receipts of petitioner as                
          determined by respondent for each of those years, multiplied by             
          11.14 percent.                                                              
               We believe the estimates of petitioner's income based on the           
          "bid sheets" are unreliable for several reasons.  Five of the               
          seven bid sheets are undated, and one of the sheets that is dated           








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