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$21,059.20. After concessions,2 the issues presented for our
consideration are: (1) Whether petitioners’ income was
understated and (2) whether petitioners are subject to section
6662(a) penalties for substantial understatement of tax or
negligent disregard of the rules or regulations.
FINDINGS OF FACT3
Petitioners Nick Kikalos and Helen Kikalos resided in
Hammond, Indiana, at the time their petition was filed. In the
statutory notice of deficiency, respondent determined that
petitioners had unreported income from the following sources:
(1) Coupon and buy-down reimbursement payments from tobacco
companies; (2) rack and promotional payments; (3) vendor refunds
and reimbursements; and (4) insurance recovery payments.
During 1997, Nick Kikalos4 (petitioner) owned and operated
four retail stores under the name of Nick’s Liquor Mart (Nick’s
Liquors) in Hammond, Indiana, selling cigarettes, beer, liquor,
wine, and other products. During the year at issue, cigarette
manufacturers employed “buy-down” programs to lower the cost of
cigarettes at which retailers, including Nick’s Liquors, sold to
2 Respondent conceded $23,244 of the $224,620 gross receipts
adjustment, as well as an adjustment of $19,652 with respect to
unreported income from H&L Display Co.
3 The parties’ stipulation of facts is incorporated by this
reference.
4 Petitioner Helen Kikalos is a party to this case by reason
of the fact that she filed a joint Federal income tax return with
Nick Kikalos for the year under consideration.
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