Dak, Inc. - Page 16

                                       - 15 -                                         
          together with a reconciliation of the register 2 tape prepared by           
          Mr. Kelson.                                                                 
               The reconciliation of the register 2 tape showed that Mr.              
          Kelson determined that the gross sales reported on the register 2           
          bar tape was $1,580.90.  He then determined that the Code V (5)             
          transactions recorded on the tape totaled $628.65.  Code V                  
          transactions are the bar sales recorded on the register 2 tape              
          that are carried over onto the register 1 tape in the dining                
          area.  Mr. Kelson deducted the $628.65 from gross sales of                  
          $1,580.90, leaving a balance of $952.25.  This step in Mr.                  
          Kelson’s reconciliation process eliminated any double-ups between           
          the dining room and bar area tapes.  Mr. Kelson then deducted               
          “comps” of $12 and overrings of $14, resulting in net sales of              
          $926.25, the amount entered by Ms. Groom as the net sales                   
          recorded on register 2.  This procedure was followed by Ms. Groom           
          during her entire audit of petitioner’s taxable year ended May              
          31, 1995.                                                                   
               Petitioner contends that it carefully maintained adequate              
          books and records for several years to determine its income.  The           
          only records the petitioner was unable to produce for examination           
          are the records for the applicable period.  Petitioner, through             
          Messrs. Chiate and Ozenne, then fabricated a scenario                       
          orchestrated to prove that the determined unreported income of              
          $120,371 can be explained away by showing that the entries on the           

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Last modified: May 25, 2011