Manuel and Margaret Karcho - Page 22

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          other testimony.  Respondent has not allowed any offset for these           
          amounts in his income reconstruction and contends that it cannot            
          be ascertained whether all or part of these amounts was already             
          deducted on Banner’s returns.                                               
               We disagree with respondent in part.  Examined as a whole,             
          the Reconciliation Sheets produce a strong inference that                   
          petitioners maintained them to keep track of their net unreported           
          cash from the business.  The “part time” amounts were recorded              
          nearly as meticulously over a period of years as the totals from            
          the Meter Readings Sheets.  Respondent’s reconstruction of                  
          Banner’s income effectively treats the Reconciliation Sheets8 as            
          accurate insofar as they record cash receipts but disregards them           
          insofar as they record cash expenses that might reduce income.              
          An examination of Banner’s tax returns reveals that for some of             
          the years in issue, Banner took no deduction for “salary and                
          wages”.  We conclude that for certain years in which Banner did             
          not claim a deduction for wages (Banner’s fiscal years ended                
          February 28, 1989 and 1990) a reasonable reconstruction of                  
          Banner’s income requires an offset for the amounts recorded under           
          “part time”; namely, $28,914 in 1989 and $28,410 in 1990.9  We              

               8  Although respondent’s income reconstruction employed the            
          Meter Readings Sheets and not the Reconciliation Sheets, the                
          gross receipts figures on each are the same.                                
               9  One month (March 1989) is missing from the Reconciliation           

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