Manuel and Margaret Karcho - Page 21

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          unreported income determined by respondent.  Cf. Cohan v.                   
          Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930)(court may                 
          estimate the amount of deductible expenditures if convinced such            
          expenditures were made); Vanicek v. Commissioner, 85 T.C. 731,              
          742-743 (1985) (court must have some basis on which to make an              
          estimate under the Cohan rule).  Petitioners’ argument fails,               
          among other reasons, for lack of substantiation.                            
               There is one respect in which respondent’s reconstruction of           
          petitioners’ income from Banner is not reasonable, however.  The            
          Reconciliation Sheets consistently list a gross receipts amount             
          for each day (which corresponds to the cash total for that day on           
          the Meter Readings Sheet), from which is subtracted (i) a bank              
          deposit amount and (ii) an amount, generally once or twice a                
          week, labeled “part”, “part time”, or “part/full workers” to                
          produce a net figure generally labeled “net” or “net income” or             
          “net cash”.  Petitioners contend that the amounts in the “part              
          time” columns represent the payment of cash to workers at the               
          arcade, which should give rise to a deduction.  That workers were           
          sometimes paid in cash and sometimes by check is corroborated by            

          previous ownership with the deductions claimed by Banner during             
          the years in issue provides support for their contention that               
          Banner understated deductions during the years in issue because             
          they were paid in cash.  We reject this argument.  As far as the            
          record reveals, the return filed by the previous owner was never            
          audited, and return positions are not evidence.                             

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