- 71 -
method to be reasonable.35 In fact, the method used by respon-
dent resulted in an amount of total Schedule C reconstructed
gross receipts for 1995 which was less than the total sales from
Barbara’s Gift Shop and Barmes Wholesale for 1995 (i.e.,
$5,799,767) that Mr. Barmes reported to the State of Indiana in
the Indiana business tangible personal property assessment return
that he filed for those businesses for that year. Under respon-
dent’s method of reconstructing petitioners’ 1995 Schedule C
gross receipts, the gross receipts from Barbara’s Gift Shop and
Barmes Wholesale for 1995 equaled only $5,107,781 (i.e.,
$4,217,046 (gross receipts of $4,217,062 less returns and allow-
ances of $16 that were reported in petitioners’ 1995 Schedule C)
plus $890,719 (unreported 1995 Schedule C gross receipts deter-
mined in the notice)), which is almost $700,000 less than the
total sales for Barbara’s Gift Shop and Barmes Wholesale for 1995
that Mr. Barmes reported in the Indiana business tangible per-
sonal property assessment return.36
35The Court sustained a similar method of reconstructing
income in Markman v. Commissioner, T.C. Memo. 1987-407.
36As respondent points out, the reasonableness of respon-
dent’s method of reconstructing petitioners’ 1995 Schedule C
gross receipts and the results produced by that method is also
evidenced by the relationship of Schedule C gross profit to
Schedule C gross receipts. The percentage of Schedule C gross
profit to reported Schedule C gross receipts for 1994 was 48.2
percent (i.e., 1994 gross profit of $2,624,759 divided by total
1994 reported gross receipts of $5,445,178). If one were to use
that percentage (i.e., 48.2 percent) in order to calculate 1995
(continued...)
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