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Sport was determined to have net income of $33,916 after
subtracting expenses of $277,243 (.891 x $311,159) from the
stipulated gross sales.
Petitioner has offered no concrete evidence to establish
either that his business diverged from that of the average
bicycle retailer or that he incurred specific costs in excess of
those taken into account by respondent’s method of
reconstruction. Rather, petitioner has offered testimony,
tangential at best, regarding his standard of living, on the
premise that “My standard of living did not, has not, never has
reflected the amount of income that they alleged, either
originally or now”. He has also relied on unsupported assertions
that his business operated at a loss, such as that in the
following brief colloquy:
THE COURT: All right. You went for 6 years
without making any money? Is that what you’re saying?
MR. COHEN: Yes, sir, absolutely.
In these circumstances, we conclude that respondent has
employed a reasonable method for reconstructing petitioner’s
Schedule C income for 1986 and that petitioner has failed to
carry his burden of showing such method to be in error. As the
Court of Appeals for the Ninth Circuit has expressly stated:
“Courts have long held that the IRS may rationally use statistics
to reconstruct income where taxpayers fail to offer accurate
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