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respondent’s agent disregarded petitioner’s losses in 1986 and
1987 on the Florida transactions.
Respondent’s agent prepared a schedule of omitted gross
receipts (the schedule), which specifically identifies the
marijuana sales petitioner participated in with Posey and
Cunningham. For each of these transactions, respondent’s special
agent calculated: (1) Gross receipts (amount of marijuana
purchased x sale price), (2) cost of marijuana sold (amount of
marijuana purchased x purchase price), and (3) the gross profit
(gross receipts minus cost of marijuana sold).
Respondent’s agent’s calculation of petitioner’s gross
receipts, cost of marijuana sold, and gross profit for each year
(from the specific marijuana sales transactions in which
petitioner participated) is summarized below:
Petitioner’s Marijuana Sales
1985 1986 1987
Gross Receipts $1,311,670 $252,800 $266,400
Cost of Goods Sold 689,410 159,525 65,490
Gross Profit 622,260 93,275 200,910
On November 15, 1991, respondent mailed to petitioner and to
Martha McHan a notice of deficiency for 1985 and 1986 based on
the above-determined $622,260 and $93,275 in income (i.e., gross
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