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Respondent computed gross receipts for 1992 through 1994 by
relying on petitioner’s redbook. Respondent reconstructed income
for the 1991 tax year using the bank deposits method.
Petitioner timely filed a petition with this Court.
Petitioner disagreed with respondent’s method of calculating
gross receipts. Petitioner alleged in the petition as follows:
The Petitioner disagrees with each and every adjustment
set forth in Respondent’s notice of deficiency. The
respondent has recomputed Petitioner’s income based on
a method that is so flawed and full of errors that it
lacks all basis in reality. Furthermore, since the
income computation is incorrect, the penalties which
are applied against the income are not appropriate and
are therefore disputed.
Petitioner did not specifically identify the alleged errors made
by respondent in the notice of deficiency.
In his answer, respondent generally denied the allegations
of error. At some point in 1999, respondent, with petitioner’s
assistance, calculated income for 1992 and 1993 via the bank
deposits method. Petitioner provided information to respondent’s
Appeals officer to establish that certain deposits for 1991,
1992, and 1993 were not taxable. The parties agreed to the
amount of unreported gross receipts for tax years 1991 through
1993 shortly thereafter.
Between May 1999 and May 2000, the parties reconstructed
petitioner’s income and expenses for tax year 1994. The parties
also reached agreement regarding the adjustment to business gross
receipts for 1994. The gross receipts per the notice of
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