- 63 - respondent stated in the explanation of adjustments (explanation) included in the notice: “in the absence of adequate books and records an indirect method was utilized to determine Gross Receipts”. Exhibit C of the explanation further detailed the method that respondent used to determine the increase in peti- tioners’ 1995 gross receipts, as follows: December 31, 1994 Total expense per 1994 Form 1040 as originally filed $1,871,671 Gross profit per 1994 Form 1040 as originally filed 2,624,759 Total expense to gross profit percentage (divide item 1 by 2) 71.31% December 31, 1995 Total expense per 1995 Form 1040 as originally filed $1,973,107 Total expense to gross profit percentage (see above) 71.31% Corrected gross profit (divide item 4 by 5) 2,766,943 Amount per return 1,876,224 Adjustment to income 890,719 In the notice, respondent also determined, inter alia, to disallow the depreciation deductions of $9,400 that petitioners claimed in the 1995 Schedule C. Respondent also determined in the notice that petitioners are liable for 1995 for the accuracy-related penalty under section 6662(a). Certain Pre-Trial Conduct of Petitioners 32(...continued) and not to unreported taxable income.Page: Previous 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 Next
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