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Market (Gene’s), a full-service grocery store. Petitioner
reported Gene’s income and expenses using the cash basis method
of accounting. Gene’s was open for business Monday through
Sunday from 9 a.m. to 9 p.m. Petitioners, along with
petitioner’s brother, father, and mother, worked at Gene’s.
In addition to selling grocery items, Gene’s cashed payroll
checks, personal checks, and third-party checks for a fee of 1
percent of the face amount of the check or $1 for checks under
$100. Gene’s did not charge a check-cashing fee if cash was
returned in connection with the purchase of groceries. The cash
petitioners used for check cashing was from sales of merchandise,
fees from cashing checks, and the proceeds of checks drawn on
Gene’s deposit account.
Two cash registers were available and used at Gene’s.
Although petitioner retained the cash register tapes, he did not
report sales based on them or reconcile the amount of cash in the
register at the end of a day’s operations. Instead, petitioner
fabricated daily sales summary sheets for Gene’s, which were used
to reflect the gross receipts for Gene’s. The fabrication of
gross receipts was accomplished by marking up the cost of
inventory and the cost of purchases by 25 percent. Petitioner
did not physically account for Gene’s inventory during the years
in issue. Petitioner did not provide his bookkeeper, Michael
Kim, with information about cash purchases or cash sales of
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Last modified: May 25, 2011