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7 employees and members of petitioners’ family. Manwah employees
used cash registers which had an internal tape system that
recorded each sale.
Manwah was located in an economically depressed area in Los
Angeles. About half of the purchases at Manwah were made with
food stamps. Manwah suffered losses from shoplifting.
Petitioners closed Manwah in December 1998 or in 1999. Six of the
7 grocery stores in the area where Manwah was located had closed
by the time of trial.
C. Petitioners’ Returns
Petitioners used a bookkeeping business known as Asian
Services to prepare their personal and partnership tax returns for
1996, 1997, and 1998.
Petitioners gave Asian Services daily cash register tapes and
other records of receipts and expenses for Manwah. Asian Services
recorded total daily sales and other information, and then
returned the records, including the tapes, to petitioners.
Petitioners stored the records at Manwah. Petitioners threw out
some of Manwah’s records for the years in issue when they cleaned
up the storage area after a visit by the Health Department.
Petitioners timely filed Forms 1040, Individual Income Tax
Return, for 1995, 1996, and 1997, and Forms 1065, U.S. Partnership
Return of Income, for 1996 and 1997. Petitioners reported costs
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