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of goods sold and gross receipts for Manwah as follows:
Cost of Gross
Year goods sold receipts
1995 $869,270 $1,088,298
1996 862,277 1,074,289
1997 881,352 1,077,288
D. Audit
Richard Ng, respondent’s revenue agent, audited petitioners’
1995, 1996, and 1997 returns. He went to Manwah and Asian
Services to examine Manwah’s records. Petitioners gave Ng daily
summaries or tapes of Manwah’s sales for 331 days for 1995, 6
months for 1996, 9 months for 1997, and all of 1998.
Ng used three indirect methods to estimate Manwah’s gross
receipts for 1995, 1996, and 1997 because petitioners did not have
complete daily records of sales for those years. First, Ng used a
percentage markup method. He applied the following formula to
estimate Manwah’s gross receipts:
Gross receipts = Cost of goods sold
(1 - Profit percentage)
Ng calculated Manwah’s gross receipts as follows. He used average
gross profit percentages contained in Dun & Bradstreet data for
U.S. grocery stores with annual gross receipts of up to $1 million.
Those percentages were 22.6 for 1995, 22.5 for 1996, and 21.2 for
1997. He used the costs of goods sold that petitioners reported on
their returns for the years in issue. Using this method, Ng
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Last modified: May 25, 2011