-14-
realized by petitioner during any of the years in issue. We
therefore give those estimates little weight.
D. Mr. Sager's "Statistical Projections" and Opinion
As a check on his estimates of petitioner's income based on
the bid sheets, Mr. Sager consulted four books setting forth
financial ratios for various industries.2 Mr. Sager stated that
according to these sources, plumbing businesses with annual sales
of less than $1 million generate net income of approximately 4.2
percent. On the basis of this information--and his personal
experience providing accounting services to construction
businesses--Mr. Sager expressed the opinion that his estimates of
petitioner's income for 1989-92 based on the bid sheets were
reasonable. Mr. Sager also opined that the amount of income
determined by respondent for each of the years 1990-92 was
unreasonable. Mr. Sager testified that in his experience, to
come out of a construction job with a 20-percent profit was
generally extraordinary.
Mr. Sager did admit that respondent's determination of
petitioner's business net income for 1989 was reasonable. In
addition, part of Mr. Sager's testimony based on his professional
experience undercuts both his testimony based on the financial
ratios, and his estimates of petitioner's income based on the bid
2 Mr. Sager's report cites Dun & Bradstreet, Industry Norms
and Key Business Ratios (1995); Robert Morris Associates, Annual
Statement Studies 1995; Schonfeld & Associates, IRS Corporate
Financial Ratios (9th ed. 1995); Troy, Almanac of Business and
Industrial Financial Ratios (1996).
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