-18-
the years 1989-92. Respondent, however, has not allowed
petitioner any deduction for those years, on account of business
expenses paid in cash.
Mr. Sager testified that respondent's determination of
petitioner's net business income as 17 percent of gross receipts
for 1989 was reasonable. He also testified, however, that
respondent's determination of net business income for each of the
years 1990-92 was unreasonable and that a profit in excess of 20
percent of gross receipts would be extraordinary. We note that
respondent has determined petitioner's net business income to be
equal to 41 percent, 43 percent, and 56 percent of gross
receipts, for 1990, 1991, and 1992, respectively.
We do not intend to relieve petitioner (or any taxpayer) of
the obligation to keep accurate records. However, the evidence
(including the stipulated facts concerning petitioner's gross
receipts, noncash expenses, and unreported net business income)
has convinced us that respondent has overstated petitioner's net
business income for, and that petitioner must have paid some
business expenses in cash during, each of the years 1990-92.
For this reason, it is appropriate for us to estimate (and
allow) at least some amount of cash business expense deductions
for each of the years 1990-92, under the rule set forth in
Cohan v. Commissioner, supra, as we applied it in Lollis v.
Commissioner, T.C. Memo. 1976-15, affd. 595 F.2d 1189 (9th Cir.
1979) (on the basis of accountant's testimony concerning industry
financial ratios and the taxpayer's income for several years
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