Bruce David Cohen - Page 8




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          statistics to reconstruct expenses.  In this endeavor, respondent           
          relied on a financial survey prepared by the National Bicycle               
          Dealers Association entitled “The Cost of Doing Business for                
          Independent Bicycle Retailers”.  The survey found that for the              
          average independent bicycle retailer with total revenue of                  
          between $250,000 and $500,000 in 1993 and 1994:  (1) The owner of           
          the business took a total salary or draws of 7.1 percent of total           
          revenues, and (2) the shop had a net financial income of 3.8                
          percent of total revenues.  The parties then stipulated that in             
          1986 the average independent bicycle retailer with total revenue            
          in the $250,000 to $500,000 range also had owner salary or draws            
          of 7.1 percent and net financial income of 3.8 percent of total             
          revenues.                                                                   
               Based on these percentages, respondent computed Bicycle                
          Sport’s net profit for tax purposes to be $33,916.  This number             
          comprises owner draws of $22,092 (.071 x $311,159), a                       
          nondeductible outlay in this context, and net financial income of           
          $11,824 (.038 x $311,159).  Stated differently, the survey showed           
          that the average bicycle retailer earned net income for tax                 
          purposes of 10.9 percent of sales (7.1 percent + 3.8 percent) and           
          incurred deductible or offsetting expenditures of 89.1 percent              
          (100 percent - 10.9 percent) of sales.  Accordingly, here Bicycle           










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