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Schedule C reporting gross receipts of $3,615,300, cost of goods
sold of $3,392,128, expenses of $208,380, and a net profit of
$16,912 that was reported on their Form 1040.
Respondent’s Examination
Revenue Agent Emmanuel Pascual (Pascual) audited
petitioners’ returns for all 3 years. Respondent’s standard
procedure when examining a sole proprietorship engaged in
operating a gasoline station involves a field visit of the
proprietor’s home and business. Pascual drove by Mena’s and by
petitioners’ home prior to contacting petitioners regarding the
examination of their returns. Pascual observed that petitioners
resided in a two-story home with a three-car garage and that
petitioner drove a Mercedes-Benz.
During the examination, petitioners consistently postponed
scheduled interviews and appointments with Pascual. Pascual
requested from petitioners documentation regarding their income,
expenses, and cost of goods sold for Mena’s. Petitioners did not
provide complete bank records, and Pascual issued summonses to
obtain copies of petitioners’ personal and business bank
statements, canceled checks, and deposit slips. At one point,
petitioners’ representative told Pascual that petitioners had no
personal bank accounts. Pascual found that petitioners did have
both business and personal bank accounts, and he obtained copies
of bank statements, canceled checks, and deposit slips. Pascual
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Last modified: May 25, 2011