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established unreported sales, the taxpayer has the burden of
proving offsetting expenses with credible evidence. Id.
Although used in appropriate cases--particularly by
respondent where taxpayers have not filed income tax
returns and have not maintained adequate books and
records--general survey data may be rejected where
taxpayers, as in the instant case, seek to use such
data to overcome clear evidence of unreported income.
[Id.; citations omitted.]
Here, petitioners have not persuaded us that the ratio of
net income to business receipts should apply to the unreported
gross receipts of Sam Kong Fashions. We have found that
respondent has proven by clear and convincing evidence that Sam
Kong Fashions underreported its gross receipts. As noted in
Schachter, the use of general data may be appropriate when the
taxpayer did not file returns and failed to maintain books and
records. Here, Sam Kong Fashions filed corporate income tax
returns in 1994 and 1995 and reported more than $200,000 in
deductions in each year at issue.16 Instead of offering credible
evidence such as invoices, receipts, and other business records,
petitioners rely on testimony and general statistical data to
prove additional business expenses. Because the “inexactitude is
16 In support of this position, petitioners rely on Adair v.
Commissioner, T.C. Memo. 2000-110, and the related case styled
Houser v. Commissioner, T.C. Memo. 2000-111. We find Adair and
Houser distinguishable from this case. Unlike Sam Kong Fashions,
which claimed deductions on its 1994 and 1995 corporate income
tax returns, the Commissioner’s determination in Adair and Houser
did not allow for business expenses even though expenses
“obviously were incurred in the roofing business”.
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