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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
7(...continued)
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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