Manuel and Margaret Karcho - Page 13

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               During 1984 and 1985, the arcade industry began facing                 
          competition from home video games that caused many arcades in the           
          area surrounding Banner to go out of business.  However, although           
          Banner’s business declined, Mr. Karcho kept the arcade in                   
          business and continued to run it through the time of trial, some            
          6 years after the last of the years in issue in this case.                  
               In applying for a City of Royal Oak, Michigan, business                
          license in 1987, Mr. Karcho knowingly failed to report 8                    
          electronic games maintained on Banner’s business premises.  By so           
          doing, Mr. Karcho temporarily evaded licensing fees of $100 per             
          game, until an inspection by the City revealed the undisclosed              
          Notice of Deficiency                                                        
               On April 8, 1996, respondent issued a notice of deficiency             
          covering petitioners’ 1987, 1988, 1989, 1990, and 1991 taxable              
          years.  Respondent determined the unreported income for each year           
          at issue by treating Banner’s gross receipts as equal to the                
          total of the daily Meter Readings Sheets for each year, plus                
          estimated receipts from the sale of food and miscellaneous items,           
          and subtracting the gross receipts reported on Banner’s return              
          for each year.2                                                             

               2  The records examined by respondent did not contain Meter            
          Readings Sheets for January and February of 1991; as a result,              
          respondent did not determine that there was any unreported arcade           

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