The deficiency notice in the instant case was sent on April 1, 1996, after the expiration of the usual 3-year period of limitations provided in section 6501(a). 1998 Tax Ct. Memo LEXIS 218">*233 The contention that the period of limitations has expired is an affirmative defense which must be specifically pleaded. Rule 39; Robinson v. Commissioner, 57 T.C. 735">57 T.C. 735, 57 T.C. 735">737 (1972). Petitioner properly raised in his petition the affirmative defense of the expiration of the period of limitations for each year in issue except 1989. Petitioner's failure to plead the affirmative defense of the expiration of the period of limitations with respect to 1989 constitutes a waiver of the defense for that year. Rule 34(b)(4); see Shopsin v. Commissioner, T.C. Memo. 1984- 151, affd. without published opinion 751 F.2d 371">751 F.2d 371 (2d Cir. 1984). Consequently, we conclude that the assessment and collection of any deficiency for 1989 is not barred by the period of limitations.

As to the remaining years (i.e., 1987, 1988, and 1990), however, unless one of the exceptions to the period of limitations is applicable, the assessment of the deficiencies, additions, and penalties determined in the deficiency notice is barred. Respondent contends that the instant case falls within the exception in section 6501(c)(1), which provides that tax may be assessed at any time if a false or fraudulent return is filed with the intent to evade tax. ^{1998 Tax Ct. Memo LEXIS 218">*234} Accordingly, respondent also determined in the deficiency notice that petitioner is liable for (1) additions to tax for fraud under section 6653(b)(1)(A) and (B) for 1987, section 6653(b) for 1988, 1998 Tax Ct. Memo LEXIS 218">*235 and (3) a penalty for fraud under section 6663 for 1989 and 1990. Sec. 7454; Rule 142(b); Farmers Feed Co. v. Commissioner, 10 B.T.A. 1069">10 B.T.A. 1069, 10 B.T.A. 1069">1075-1076 (1928). The Commissioner's burden is the same as that which is borne with respect to the fraud additions imposed under section 6653(b) and the fraud penalties imposed under section 6663. See, e.g., Schaffer v. Commissioner, 779 F.2d 849">779 F.2d 849, 779 F.2d 849">857 (2d Cir. 1985), affg. in part and remanding in part T.C. Memo. 1982-34; Asphalt Indus., Inc. v. Commissioner, 384 F.2d 229">384 F.2d 229, 384 F.2d 229">232 (3d Cir. 1967), revg. on other grounds 46 T.C. 622">46 T.C. 622 (1966); Estate of Temple v. Commissioner, 67 T.C. 143">67 T.C. 143, 67 T.C. 143">159-160 (1976). Accordingly, we consider 1998 Tax Ct. Memo LEXIS 218">*236 together (1) the fraud exception to the general 3-year period of limitations with respect to 1987, 1988, and 1990 and (2) the fraud additions and penalties for all years in issue, including 1989.

To carry the burden of proof on the fraud exception and the fraud additions and penalties, the Commissioner must show by clear and convincing evidence both (1) that the taxpayer underpaid his tax for each taxable year in issue and (2) that at least some part of the underpayment was due to fraud. Sec. 7454(a); Rule 142(b); DiLeo v. Commissioner, 96 T.C. 858">96 T.C. 858, 96 T.C. 858">873 (1991), affd. 959 F.2d 16">959 F.2d 16 (2d Cir. 1992); Hebrank v. Commissioner, 81 T.C. 640">81 T.C. 640, 81 T.C. 640">642 (1983).

A. PROOF OF AN UNDERPAYMENT

The Commissioner need not prove the precise amount of the underpayment resulting from fraud, but only that there is some underpayment and that some part of it is attributable to fraud. Lee v. United States, 466 F.2d 11">466 F.2d 11, 466 F.2d 11">16-17 (5th Cir. 1972); Plunkett v. Commissioner, 465 F.2d 299">465 F.2d 299, 465 F.2d 299">303 (7th Cir. 1972), affg. T.C. Memo. 1970-274. To carry that burden, the Commissioner may not rely on the taxpayer's failure to meet his burden of proving error in the Commissioner's determinations as to the deficiencies. 96 T.C. 858">DiLeo v. Commissioner, supra at 873; 1998 Tax Ct. Memo LEXIS 218">*237 Habersham-Bey v. Commissioner, 78 T.C. 304">78 T.C. 304, 78 T.C. 304">312 (1982); Otsuki v. Commissioner, 53 T.C. 96">53 T.C. 96, 53 T.C. 96">106 (1969).

In the instant case, it is uncontroverted that petitioner failed to report certain gross receipts during the years in issue. Petitioner concedes unreported gross receipts on brief and in his stipulated calculations. Accordingly, we conclude that the record contains clear and convincing evidence of unreported gross receipts for each year in issue.

The existence of unreported gross receipts, however, does not demonstrate that petitioner underpaid his tax for each of the years in issue. Indeed, gross receipts from sales must be reduced by cost of goods sold to determine gross income from sales. Sec. 1.61- 3(a), Income Tax Regs. Moreover, gross income from sales must be reduced by all deductible expenses to determine taxable income from sales. Sec. 63(a). Accordingly, an underpayment of tax resulting from unreported gross receipts from sales is possible only if such unreported gross receipts are not exceeded by cost of goods sold and deductible expenses. See, e.g., Franklin v. Commissioner, T.C. Memo. 1993-184.

In the instant case, petitioner contends that he did not underpay his tax for 1998 Tax Ct. Memo LEXIS 218">*238 the years in issue because the profits from unreported sales of alcoholic beverages at the Bullfrog were used to pay bands that performed at the Bullfrog.

The general rule is well settled that, even in criminal cases where the Government bears the greater burden of proof, i.e. beyond a reasonable doubt, 'evidence of unexplained receipts shifts to the taxpayer the burden of coming forward with evidence as to the amount of offsetting expenses, if any.'" United States v. Garguilo, 554 F.2d 59">554 F.2d 59, 554 F.2d 59">62 (2d Cir. 1977) (quoting Siravo v. United States, 377 F.2d 469">377 F.2d 469, 377 F.2d 469">473 (1st Cir. 1967)); United States v. Campbell, 351 F.2d 336">351 F.2d 336, 351 F.2d 336">339 (2d Cir. 1965); Gleave v. Commissioner, T.C. Memo. 1997-276; Franklin v. Commissioner, supra.

Citing Richardson v. Commissioner, 264 F.2d 400">264 F.2d 400, 264 F.2d 400">404 (4th Cir. 1959), revg. in part T.C. Memo. 1957-122, and Perez v. Commissioner, T.C. Memo. 1974-211, however, petitioner contends that respondent bears the burden of proving that petitioner did not incur the band expenses that he now claims. Petitioner argues that respondent failed to carry this burden because respondent presented no evidence whatsoever with respect to the band expenses.

We have no doubt, as indicated by our 1998 Tax Ct. Memo LEXIS 218">*239 findings of fact, that petitioner incurred deductible band expenses during the years in issue. We conclude, however, that even if we credit petitioner with the band expenses that he claims, much of which we credit infra in deciding the correct amount of the deficiency, those expenses, along with the additional expenses and purchases conceded by respondent, nonetheless would be insufficient to offset the unreported gross receipts proved by respondent and discussed more fully infra. ^{1998 Tax Ct. Memo LEXIS 218">*240} We therefore find it unnecessary to explore the implications of 264 F.2d 400">Richardson v. Commissioner, supra and Perez v. Commissioner, supra. Consequently, we conclude, that respondent has shown by clear and convincing evidence that petitioner had unreported gross receipts, net of expenses, which result in an underpayment of tax for each year in issue.

B. PROOF THAT THE UNDERPAYMENT WAS DUE TO FRAUD

Fraud is defined as an intentional wrongdoing designed to evade tax believed to be owing. Powell v. Granquist, 252 F.2d 56">252 F.2d 56 (9th Cir. 1958); DiLeo v. Commissioner, 96 T.C. 858">96 T.C. 874; 1998 Tax Ct. Memo LEXIS 218">*241 Miller v. Commissioner, 94 T.C. 316">94 T.C. 316, 94 T.C. 316">332 (1990). The Commissioner's burden of proving fraud is met if it is shown that the taxpayer intended to evade taxes known to be owing by conduct intended to conceal, mislead or otherwise prevent the collection of taxes. Stoltzfus v. United States, 398 F.2d 1002">398 F.2d 1002, 398 F.2d 1002">1004 (3d Cir. 1968); 96 T.C. 858">DiLeo v. Commissioner, supra at 874; Rowlee v. Commissioner, 80 T.C. 1111">80 T.C. 1111, 80 T.C. 1111">1123 (1983).

The existence of fraud is a question of fact and is to be resolved on the basis of the entire record. 96 T.C. 858">DiLeo v. Commissioner, supra at 874; Gajewski v. Commissioner, 67 T.C. 181">67 T.C. 181, 67 T.C. 181">191 (1976), affd. without published opinion 578 F.2d 1383">578 F.2d 1383 (8th Cir. 1978). Fraud is not to be imputed or presumed. It must be affirmatively established by clear and convincing evidence. Beaver v. Commissioner, 55 T.C. 85">55 T.C. 85, 55 T.C. 85">92 (1970). The taxpayer's entire course of conduct may establish the requisite fraudulent intent. 96 T.C. 858">DiLeo v. Commissioner, supra at 874; Stone v. Commissioner, 56 T.C. 213">56 T.C. 213, 56 T.C. 213">223-224 (1971). Because direct evidence of the taxpayer's fraudulent intent is rarely available, fraud may be proven by circumstantial evidence and reasonable inferences drawn from the facts. 96 T.C. 858">DiLeo v. Commissioner, supra at 874; 1998 Tax Ct. Memo LEXIS 218">*242 80 T.C. 1111">Rowlee v. Commissioner, supra at 1123.

Courts have relied on a number of indicia of fraud in deciding whether to sustain the Commissioner's determinations with respect to fraud. Although no single factor is necessarily sufficient to establish fraud, the existence of several indicia is persuasive circumstantial evidence of fraud. Petzoldt v. Commissioner, 92 T.C. 661">92 T.C. 661, 92 T.C. 661">700 (1989). In Bradford v. Commissioner, 796 F.2d 303">796 F.2d 303, 796 F.2d 303">307 (9th Cir. 1986), affg. T.C. Memo. 1984-601, the Court of Appeals for the Ninth Circuit gave a nonexclusive list of circumstantial evidence that may give rise to a finding of fraudulent intent. Badges of fraud include (1) understatement of income, (2) inadequate records, and (3) dealing in cash. Id. A failure to be forthright with one's return preparer is also an indication of fraud, Korecky v. Commissioner, 781 F.2d 1566">781 F.2d 1566, 781 F.2d 1566">1568 (11th Cir. 1986), affg. per curiam T.C. Memo. 1985- 63, as is a conviction under section 7206(1), Wright v. Commissioner, 84 T.C. 636">84 T.C. 636 (1985).

Although the mere failure to report income is not sufficient to establish fraud, Merritt v. Commissioner, 301 F.2d 484">301 F.2d 484, 301 F.2d 484">487 (5th Cir. 1962), affg. T.C. Memo. 1959-172, a pattern of consistent underreporting 1998 Tax Ct. Memo LEXIS 218">*243 of income, especially when accompanied by other circumstances showing an intent to conceal, justifies the inference of fraud, see Holland v. United States, 348 U.S. 121">348 U.S. 121, 348 U.S. 121">139 (1954); Parks v. Commissioner, 94 T.C. 654">94 T.C. 654, 94 T.C. 654">664 (1990); Otsuki v. Commissioner, 53 T.C. 96">53 T.C. 108. In the instant case, considering the record as a whole, we conclude that there are sufficient badges of fraud to carry respondent's burden of proof. The record reveals a pattern of consistent underreporting of income by petitioner during all of the years in issue. Moreover, it is uncontroverted that petitioner failed to maintain adequate records of his unreported income and expenses and that petitioner conducted much of his business in cash. Additionally, petitioner failed to be forthcoming with his return preparer, Mr. Dillon, disclosing neither his cash purchases nor his band expenses, including band advertising. Furthermore, while a conviction under section 7206(1) does not establish fraud, it is one factor to be considered. 84 T.C. 636">Wright v. Commissioner, supra at 643-644.

We conclude that the record in the instant case contains clear and convincing evidence that there was an underpayment for each year in issue and that 1998 Tax Ct. Memo LEXIS 218">*244 each such underpayment was due to fraud.

C. CONCLUSION

Having found fraud for each year in issue, we conclude that: (1) Section 6501(a) does not operate to bar the assessment and collection of taxes for 1987, 1988, and 1990; (2) for 1987, petitioner is liable for the 75-percent fraud addition to tax under section 6653(b)(1)(A) and for the additional amount added to the tax under section 6653(b)(1)(B); (3) for 1988, petitioner is liable for the 75-percent fraud addition to tax under section 6653(b); and (4) for 1989 and 1990, petitioner is liable for the 75-percent fraud penalty under section 6663.

We have considered the parties remaining arguments as to fraud and conclude that the arguments are either without merit or unnecessary to reach in light of our holdings above.

II. AMOUNT OF THE DEFICIENCY ^{1998 Tax Ct. Memo LEXIS 218">*245 gross receipts, petitioner did not concede unreported gross receipts in the amounts determined by respondent. Petitioner contends that respondent's reconstruction of gross receipts is overstated because it relies on certain erroneous assumptions. Each contested item is addressed separately below.
1. KEG SALESPetitioner asserts that respondent's calculation of gross receipts from the sale of draft beer is overstated because it makes no allowance for kegs that were sold for off-premises consumption. 1998 Tax Ct. Memo LEXIS 218">*246 Petitioner contends that, during each year in issue, he sold approximately 85 kegs to go at a price of $5 over cost.
In support of his position, petitioner points to his testimony and that of Ms. Stacey. Petitioner testified that he sold kegs throughout the calendar year, but that the busiest period for keg sales was from May to October, with sales peaking during the summer months (June, July, and August). Petitioner indicated that he sold approximately 3 to 3-1/2 kegs per week during the peak summer months (June, July, and August), and 2 to 3 kegs per week during the remainder of the busy season (May, September, and October). Petitioner also testified that he had seven or eight portable keg taps on hand at the Bullfrog.
Ms. Stacey's testimony indicates that, although she had no involvement in the sale of kegs at the Bullfrog, she saw individuals purchase kegs, for parties, weddings, and special occasions. Ms. Stacey recalled that petitioner sold two to three kegs per week, depending on the season, and that more kegs were sold during the summer months. Ms. Stacey, however, could not say with certainty 1998 Tax Ct. Memo LEXIS 218">*247 the total number of kegs sold to go. Furthermore, she did not know whether petitioner owned any portable keg taps.
Respondent urges this Court to discount petitioner's testimony as unreliable and self-serving because petitioner maintained no books or records from which the number of kegs he sold to go can be determined. Emphasizing the fact that Ms. Stacey had no direct involvement in the sale of kegs and could neither say how many kegs petitioner allegedly sold to go nor corroborate the claim that petitioner had portable keg taps on hand for use with kegs sold to go, respondent also calls into doubt the testimony of Ms. Stacey. Respondent contends that petitioner's attempt to rebut the determination of gross receipts from the sale of keg beer falls solely on petitioner's self-serving, uncorroborated testimony, which is insufficient to refute respondent's determination.
Generally, a taxpayer's unimpeached, competent, and relevant testimony may not be arbitrarily discredited and disregarded. See, e.g., Blackmer v. Commissioner, 70 F.2d 255">70 F.2d 255, 70 F.2d 255">257 (2d Cir. 1934); Akerson v. Commissioner, T.C. Memo. 1998-129 (and the cases cited therein). Petitioner's testimony was believable and was corroborated 1998 Tax Ct. Memo LEXIS 218">*248 by the testimony of Ms. Stacey, whom we also find credible. Although she could not say with certainty the number of kegs sold, or whether petitioner had portable keg taps on hand, Ms. Stacey did see kegs of beer sold to go at the Bullfrog.
We are satisfied from the record that petitioner did in fact sell kegs of beer to go at a price of $5 over cost. The only question remaining is the quantity sold. Bearing heavily against petitioner, whose inexactitude is of his own making, we find, on the basis of the record before us, that petitioner sold 40 kegs to go during each year in issue. Cf. Cohan v. Commissioner, 39 F.2d 540">39 F.2d 540 (2d Cir. 1930). Accordingly, we conclude that petitioner's gross receipts from the sale of keg beer are as follows:
Over-the-Bar To-Go Total
Year Gross Receipts Gross Receipts Gross Receipts ¹⁹⁸⁷ $ 9,120.87 $ 1,125.20 $ 10,246.07
1988 15,365.79 1,132.00 16,497.79
1989 17,214.62 1,224.40 18,439.02
1990 15,735.56 1,248.00 16,983.56
2. CANNED BEER SALES
Petitioner asserts that respondent erred by calculating gross receipts from the sale of canned beer on the assumption that all cans were sold over the bar, for on-premises consumption. ^{1998 Tax Ct. Memo LEXIS 218">*250} Petitioner contends 1998 Tax Ct. Memo LEXIS 218">*249 that during the time preceding April 1990, he sold canned beer exclusively to go in six-packs for $3.25 each ($4 each for premium brands such as Michelob and Molsen). 1998 Tax Ct. Memo LEXIS 218">*251 34 cash register tapes from 1987 and 1988 fails to corroborate petitioner's contention that six-packs were sold only to go during the period prior to April 1990. Respondent argues that the sampling should show 238 entries of $3.25 under category I (for beer sales) if petitioner in fact sold all canned beer to go during the 2-year period including 1987 and 1988. 1998 Tax Ct. Memo LEXIS 218">*252 Respondent contends that the stipulated sampling contains only four such entries. Such a large disparity, respondent argues, casts doubt on petitioner's claim that he sold canned beer to go.
We do not find the lack of entries on the stipulated sampling of cash register tapes fatal to petitioner's contention that he sold six-packs of beer to go during the years in issue. Rather, we would not expect the cash register receipts to include all of petitioner's six-pack sales. Although Ms. Stacey testified that she rang up all six-pack sales, she also testified that she sold relatively few six-packs of beer during her shift (i.e., 11 a.m. to 2 p.m.) at the Bullfrog. Except occasionally, Ms. Stacey did not work weekends and evenings when the bulk of petitioner's six-pack sales took place. Furthermore, petitioner testified that he failed to ring up all six-pack sales. 1998 Tax Ct. Memo LEXIS 218">*253 testified that he sold 5 to 10 six-packs each night during the weekend (i.e., Friday and Saturday) and 2 to 3 six-packs each night during the remainder of the week (i.e., Sunday through Thursday). Petitioner purchased 2,928 six-packs during 1987, 2,672 six-packs during 1988, and 2,464 six- packs during 1989. Cohan v. Commissioner, 39 F.2d 540">39 F.2d 540 (2d Cir. 1930). Accordingly, we conclude that petitioner's gross receipts from the sale of canned beer are as follows:
Over-the-Bar To-Go Total
Year Gross Receipts Gross Receipts Gross Receipts ^{1998 Tax Ct. Memo LEXIS 218">*254}
1987 $ 9,534.80 $ 4,394 $ 13,928.80
1988 7,986.00 4,394 12,380.00
1989 6,727.60 4,394 11,121.60
1990 21,271.80 4,394 25,665.80
3. BOTTLED BEER SALES
Petitioner contends that the 8.3-percent discretionary use allowance applied by respondent in the calculation of gross receipts from the sale of bottled beer is unreasonably low, especially considering that respondent used a 17-percent discretionary use allowance for sales of draft beer which, unlike bottled beer, does not involve breakage. Petitioner asserts that he should be afforded a 15-percent allowance for discretionary use in computing gross receipts from the sale of bottled beer.
In support of his contention, petitioner offers (1) his testimony that he gave away free beers to patrons and band members and (2) Ms. Stacey's testimony that she also gave away free drinks at the Bullfrog. ^{1998 Tax Ct. Memo LEXIS 218">*255 that he favored certain patrons with free drinks. Accordingly, petitioner's testimony indicates that he did not employ a consistent policy of providing complimentary drinks at the Bullfrog. Given in response to questioning concerning liquor sales, Ms. Stacey's testimony regarding free drinks of liquor likewise sheds no light on the appropriate discretionary use allowance for bottled beer sales. We conclude that 8.3 percent is a reasonable allowance for discretionary use. See, e.g., Jurkiewicz v. Commissioner, T.C. Memo. 1955-318 (5-percent reduction for spillage, waste, and gratuities sustained). Consequently, we find that petitioner's gross receipts from the sale of bottled beer are as follows:}
Bottled Beer
Year Gross Receipts ¹⁹⁸⁷ $ 135,011.80
1988 116,740.80
1989 118,071.80
1990 62,920.00
4. WINE SALES
Petitioner contends that respondent erred by calculating gross receipts from the sale of wine on the assumption that each glass of wine sold contained 1998 Tax Ct. Memo LEXIS 218">*256 only 4 ounces of wine. To the contrary, petitioner asserts that each glass of wine sold contained 6 ounces of wine. 1998 Tax Ct. Memo LEXIS 218">*257 When viewed in context, however, petitioner's testimony reveals no incongruity. Petitioner's statement that each bottle yielded only 2 1/2 glasses of wine was made in response to respondent's inquiry as to whether wine was served over ice. Petitioner stated that wine was served "either way" and then elaborated on how many servings he obtained from each bottle.
Respondent contends that a 6-ounce serving 1998 Tax Ct. Memo LEXIS 218">*258 of wine is "unreasonably large" and that aside from petitioner's testimony, the record is devoid of any further evidence to support or corroborate his assertions. To the contrary, we find that the record is devoid of any evidence as to what constitutes an "unreasonably large" glass of wine. Moreover, we find no reason to doubt either the honesty or credibility of petitioner's testimony concerning the size of wine drinks served at the Bullfrog. Accordingly, we find that each wine drink sold contained 6 ounces of wine. Consequently we conclude that petitioner's gross receipts from the sale of wine are as follows:
Wine
Year Gross Receipts ¹⁹⁸⁷ $ 1,053.92
1988 1,499.80
1989 1,521.91
1990 1,503.49
5. LIQUOR SALES
Petitioner asserts that each liquor drink sold contained 1.6 ounces of liquor and that respondent erred by calculating gross receipts from the sale of liquor on the assumption that each liquor drink sold contained only 1 ounce of liquor.
Respondent predicated the determination that each liquor drink contained only 1 ounce of liquor on petitioner's earlier statement to Revenue Agent Theresa Antoun (Ms. Antoun) during a February 1990 interview. In that 1998 Tax Ct. Memo LEXIS 218">*259 interview petitioner indicated that he sold shots of liquor for $1 and that each bottle of liquor contained approximately 20 to 22 shots. Respondent determined that each liquor drink contained 1 ounce of liquor on the basis of the sale of 21 shots from each .750-liter bottle of liquor (i.e., after the 16-percent discretionary use allowance each .750-liter bottle yields twenty-one 1-ounce shots). 1998 Tax Ct. Memo LEXIS 218">*260 to Ms. Antoun because each liter bottle of liquor generates 20 to 22 shots which are at least 1.5 ounces. 1998 Tax Ct. Memo LEXIS 218">*261 1.3 ounces of liquor. Consequently we conclude that petitioner's gross receipts from the sale of liquor are as follows:
Liquor
Year Gross Receipts ¹⁹⁸⁷ $ 28,856.38
1988 42,755.46
1989 52,185.19
1990 28,551.23
6. CONCLUSION
On the basis of our findings above, we conclude that petitioner had unreported gross receipts of $104,917.40 for 1987, $116,072.49 for 1988, $127,473.82 for 1989, and $31,369.34 for 1990. 1998 Tax Ct. Memo LEXIS 218">*262 the years in issue. Respondent allowed petitioner a deduction for band advertising expenses but allowed no deduction for the related band expenses on the ground that petitioner failed to substantiate those expenses.
The Court must estimate the amount of the deductible expense if a taxpayer establishes that a deductible expense was paid, even though the precise amount has not been established. Cohan v. Commissioner, 39 F.2d 540">39 F.2d at 543-544. We are satisfied by the testimony of petitioner, Ms. Stacey, and Mr. Blackburn that petitioner incurred deductible band expenses during the years in issue. Petitioner and Ms. Stacey both testified that petitioner hired bands to play at the Bullfrog throughout the years in issue. Mr. Blackburn, the local entertainment agent, testified that he personally placed bands at the Bullfrog during the years in issue. That petitioner incurred deductible band expenses is further corroborated by the stipulated fact that petitioner advertised bands and incurred band advertising expenses. From such advertising expenses we draw the reasonable inference that petitioner did, in fact, pay some amount of deductible band expenses.
Relying on Professional Servs. v. Commissioner, 79 T.C. 888">79 T.C. 888 (1982), 1998 Tax Ct. Memo LEXIS 218">*263 respondent contends that the Cohan rule is inapplicable for all of the years in issue because the evidence is insufficient to make a reasonable estimation of petitioner's band expenses. ^{1998 Tax Ct. Memo LEXIS 218">*264 Thursday, Friday, and Saturday) in each advertisement. We also credit petitioner's testimony concerning the amounts he paid bands booked to play at the Bullfrog, which indicates that he generally paid Thursday night bands $225 for each performance. Petitioner's testimony also indicates that he typically paid Friday and Saturday night bands $300, although he occasionally paid up to $500 for popular bands. Petitioner's testimony is corroborated by that of Mr. Blackburn, who indicated that in Jamestown, during the years in issue, the going rate for a Thursday night band was at least $250 and that the going rate for a weekend band (i.e., Friday or Saturday night) was $250 to $350.}
Using the foregoing parameters, petitioner computed band expenses in the amounts of $36,300, $39,600, $32,175, and $26,400 for 1987, 1988, 1989, and 1990, respectively. 1998 Tax Ct. Memo LEXIS 218">*265 reveal. Moreover, petitioner's computations do not reflect any allowance for bands that failed to perform as advertised. Bearing heavily against petitioner, whose inexactitude is of his own making, 39 F.2d 540">Cohan v. Commissioner, supra, we find that petitioner incurred deductible band expenses in the amounts of $18,150, $19,800, $16,088, and $13,200 for 1987, 1988, 1989, and 1990, respectively.
1998 Tax Ct. Memo LEXIS 218">*266 2. RACE CAR EXPENSES -- 1987 AND 1988
As indicated in our findings of fact, we are satisfied from the record that petitioner incurred deductible expenses in connection with his car racing business. Accordingly, an estimate must be made under 39 F.2d 540">Cohan v. Commissioner, supra.^{1998 Tax Ct. Memo LEXIS 218">*267 of $50 to $55 per tire. From the record we find that petitioner incurred deductible expenses of $750 for each year in issue (i.e., 1987 and 1988). 39 F.2d 540">Cohan v. Commissioner, supra.}
3. TRUCK EXPENSES -- 1990
Petitioner claimed truck expenses for the Bullfrog in the amount of $3,800 for 1990. Mr. Dillon computed petitioner's deduction for truck expenses based on petitioner's statement that he put approximately 15,000 business miles on the vehicle during 1990. Respondent disallowed petitioner's deduction for the truck expenses on the basis of petitioner's inability to substantiate them. Respondent failed, however, to assert the applicability of section 274(d)(4), which imposes strict substantiation requirements with respect to certain listed property, defined in section 280F(d)(4)(A) to include passenger automobiles. Section 280F(d)(5)(A) defines the term "passenger automobile" to mean any four-wheeled vehicle (i) which is manufactured primarily for use on public streets, roads, and highways, and (ii) which is rated at 6,000 pounds unloaded gross vehicle weight or less. In the case of a truck, section 280F(d)(5)(A)(ii) is to be applied by substituting "gross vehicle weight" for "unloaded 1998 Tax Ct. Memo LEXIS 218">*268 gross vehicle weight". Sec. 280F(d)(5).
We treat respondent's failure to argue that section 274(d)(4) is applicable in the instant case as a concession that it does not apply to petitioner's vehicle. Accordingly, we decline to apply the strict substantiation requirements imposed by section 274(d)(4) and look instead to the rule of Cohan v. Commissioner, 39 F.2d 540">39 F.2d 540 (2d Cir. 1930), to decide the amount of petitioner's truck expenses. Bearing heavily against petitioner, whose inexactitude is of his own making, we find that petitioner incurred deductible truck expenses of $1,500 for 1990.
We have considered the parties' remaining arguments concerning the amounts of the deficiencies for the years in issue and find those arguments to be either without merit or unnecessary to reach.
III. SUBSTANTIAL UNDERSTATEMENTSection 6661(a) imposes an addition to tax of 25 percent of any underpayment attributable to a substantial understatement of tax. A substantial understatement is any understatement which exceeds the greater of (1) 10 percent of the tax required to be shown on the return or (2) $5,000. Sec. 6661(b)(1)(A). If the taxpayer has substantial authority for the tax treatment of the item 1998 Tax Ct. Memo LEXIS 218">*269 in question, or if the taxpayer adequately discloses the tax treatment of the item on the return, then the amount of the understatement for purposes of this section will be reduced by that portion of the understatement which is attributable to that item. Sec. 6661(b)(2)(B).
Petitioner made no disclosures with his returns for the years in issue. Petitioner argues simply that there is no underpayment of tax for any of the years in issue which constitutes a substantial understatement of income tax within the meaning of section 6661. Consequently, should either the 1987 or the 1988 understatement of tax as recalculated in accordance with this opinion be substantial, we hold that petitioner is liable for the addition to tax under section 6661 for the applicable year.
Decision will be entered under Rule 155. <$121:>
APPENDIX
TABLE I GROSS RECEIPTS FROM KEG BEER SALES
1987 1988 1989 1990
Kegs purchased 151 227 249.50 231.50
Less: Kegs sold
to go 40 40 40 40
Kegs sold over the bar 111 187 209.50 191.50
Multiplied
by $ 82.17^{1998 Tax Ct. Memo LEXIS 218">*270} $ 82.17 $ 82.17 $ 82.17 $ 82.17
Gross receipts from
over-the-bar sales $ 9,120.87 $ 15,365.79 $ 17,214.62 $ 15,735.56
Gross receipts from
to-go sales^{$ 1,125.20} $ 1,132.00 $ 1,224.40 $ 1,248.00
Total gross
receipts from
keg sales $ 10,246.07 $ 16,497.79 $ 18,439.02 $ 16,983.56
TABLE II GROSS RECEIPTS FROM CANNED BEER SALES
1987 1988 1989 1990
Individual cans sold
over the bar^9,456 7,920 6,672 21,096
Less: 2 cans/case
discretionary use
allowance^{1998 Tax Ct. Memo LEXIS 218">*271} 788 660 556 1,758
Total cans sold
over the bar 8,668 7,260 6,116 19,338
Multiplied
by $ 1.10^{$ 1.10} $ 1.10 $ 1.10 $ 1.10
Gross receipts from
over-the-bar sales $ 9,534.80 $ 7.986.00 $ 6,727.60 $ 21,271.80
Gross receipts from
to-go sales^{$ 4,394.00} $ 4,394.00 $ 4,394.00 $ 4,394.00
Total gross
receipts from
keg sales $ 13,928.80 $ 12,380.00 $ 11,121.60 $ 25,665.80
TABLE III GROSS RECEIPTS FROM BOTTLED BEER SALES
1987 1988 1989 1990
Total cases
purchased 5,579 4,824 4,879 2,600
Multiplied by 24
bottles/case 24 24 24 24
Total bottles
purchased 133,896 115,776 117,096 62,400
Less: 2 bottles/
case
discretionary
use allowance^11,158 9,648 9,758 5,200
Total bottles sold 122,738 106,128 107,338 57,200
Multiplied by
$ 1.10^{$ 1.10} $ 1.10 $ 1.10 $1.10
Total gross
receipts from
bottled beer
sales $ 135,011.80 $ 116,740.80 $ 118,071.80 $ 62,920.00
TABLE IV GROSS RECEIPTS FROM WINE SALES
1987 1988 1989 1990
.750-liter bottles:
Number of 6-oz.
glasses/bottle^{1998 Tax Ct. Memo LEXIS 218">*272} 3.35 3.35 3.35 3.35
Multiplied by number
of bottles sold 23 25 60 143
Total glasses sold 77.05 83.75 201.00 479.05
Multiplied by
$ 1.10^{$ 1.10} $ 1.10 $ 1.10 $ 1.10
Gross receipts from
.750-liter bottles $ 84.76 $ 92.13 $ 221.10 $ 526.96
Liter bottles:
Number of 6-oz.
glasses/bottle1 3.35 3.35 3.35 3.35
Multiplied by number
of bottles sold 167 142 269 181
Total glasses sold 559.45 475.70 901.15 606.35
Multiplied by
$ 1.102 $ 1.10 $ 1.10 $ 1.10 $ 1.10
Gross receipts from
liter bottles $ 615.40 $ 523.27 $ 991.27 $ 666.99
1.5-liter bottles:^{Number of 6-oz.}
glasses/bottle1 6.70 6.70 6.70 6.70
Multiplied by number
of bottles sold -0- 96 42 42
Total glasses sold -0- 643.20 281.40 281.40
Multiplied by
$ 1.102 -0- $ 1.10 $ 1.10 $ 1.10
Gross receipts
from 1.5-liter
bottles -0- $ 707.52 $ 309.54 $ 309.54
3-liter bottles:^{Number of 6-oz.}
glasses/bottle1 13.40 13.40 13.40 13.40
Multiplied by number
of bottles sold 24 12 -0- -0-
Total glasses sold 321.60 160.40 -0- -0-
Multiplied by $ 1.102 $ 1.10 $ 1.10 -0- -0-
Gross receipts
from 3-liter bottles $ 353.76 $ 176.88 -0- -0-
Total gross receipts
from wine $ 1,053.92 $ 1,499.80 $ 1,521.91 $ 1,503.49
TABLE V GROSS RECEIPTS FOR LIQUOR SALES
1987 1988 1989 1990
Liter bottles
Number of 1.3-oz.
servings/bottle^{1998 Tax Ct. Memo LEXIS 218">*273} 21.65 21.65 21.65 21.65
Multiplied by
number of bottles
purchased 1,114 1,658 2,087 1,140
Number of 1.3-oz.
servings sold 24,118.10 35,895.70 45,183.55 24,681
Multiplied
by $ 1.15^{$ 1.15} $ 1.15 $ 1.15 $ 1.15
Gross receipts
from liter
bottles 27,735.82 41,280.06 51,961.08 28,383.15
.750-liter bottles
Number of 1.3-oz.
servings/bottle1 16.24 16.24 16.24 16.24
Multiplied by
number of bottles
purchased 60 79 12 9
Number of 1.3-oz.
servings sold 974.40 1,282.96 194.88 146.16
Multiplied
by $ 1.152 $ 1.15 $ 1.15 $ 1.15 $ 1.15
Gross receipts
from .750-liter
bottles 1,120.56 1,475.40 224.11 168.08
Total gross
receipts from
liquor sales $ 28,856.38 $ 42,755.46 52,185.19 28,551.23
TABLE VI GROSS RECEIPTS -- SUMMARY
1987 1988 1989 1990
Keg beer gross
receipts $ 10,246.07 $ 16,497.79 $ 18,439.02 $ 16,983.56
Canned beer gross
receipts 13,928.80 12,380.00 11,121.60 25,665.80
Bottled beer gross
receipts 135,011.80 116,740.80 118,071.80 62,920.00
Wine gross receipts 1,053.92 1,499.80 1,521.91 1,503.49
Liquor gross receipts 28,856.38 42,755.46 52,185.19 28,551.23
Total gross receipts 189,096.97 189,873.85 201,339.52 135,624.08
Less: Reported
gross receipts 84,179.57 73,801.36 73,865.70 104,254.74
Unreported gross
receipts 104,917.40 116,072.49 127,473.82 31,369.34}

TABLE I GROSS RECEIPTS FROM KEG BEER SALES
Kegs purchased	151	227	249.50	231.50
Less: Kegs sold
to go	40	40	40	40
Kegs sold over the bar	111	187	209.50	191.50
Multiplied
by $ 82.17^{1998 Tax Ct. Memo LEXIS 218">*270}	$ 82.17	$ 82.17	$ 82.17	$ 82.17
Gross receipts from
over-the-bar sales	$ 9,120.87	$ 15,365.79	$ 17,214.62	$ 15,735.56
Gross receipts from
to-go sales^{$ 1,125.20}	$ 1,132.00	$ 1,224.40	$ 1,248.00
Total gross
receipts from
keg sales	$ 10,246.07	$ 16,497.79	$ 18,439.02	$ 16,983.56

TABLE II GROSS RECEIPTS FROM CANNED BEER SALES
Individual cans sold
over the bar^9,456	7,920	6,672	21,096
Less: 2 cans/case
discretionary use
allowance^{1998 Tax Ct. Memo LEXIS 218">*271}	788	660	556	1,758
Total cans sold
over the bar	8,668	7,260	6,116	19,338
Multiplied
by $ 1.10^{$ 1.10}	$ 1.10	$ 1.10	$ 1.10
Gross receipts from
over-the-bar sales	$ 9,534.80	$ 7.986.00	$ 6,727.60	$ 21,271.80
Gross receipts from
to-go sales^{$ 4,394.00}	$ 4,394.00	$ 4,394.00	$ 4,394.00
Total gross
receipts from
keg sales	$ 13,928.80	$ 12,380.00	$ 11,121.60	$ 25,665.80

TABLE III GROSS RECEIPTS FROM BOTTLED BEER SALES
Total cases
purchased	5,579	4,824	4,879	2,600
Multiplied by 24
bottles/case	24	24	24	24
Total bottles
purchased	133,896	115,776	117,096	62,400
Less: 2 bottles/
case
discretionary
use allowance^11,158	9,648	9,758	5,200
Total bottles sold	122,738	106,128	107,338	57,200
Multiplied by
$ 1.10^{$ 1.10}	$ 1.10	$ 1.10	$1.10
Total gross
receipts from
bottled beer
sales	$ 135,011.80	$ 116,740.80	$ 118,071.80	$ 62,920.00

TABLE IV GROSS RECEIPTS FROM WINE SALES
.750-liter bottles:
Number of 6-oz.
glasses/bottle^{1998 Tax Ct. Memo LEXIS 218">*272}	3.35	3.35	3.35	3.35
Multiplied by number
of bottles sold	23	25	60	143
Total glasses sold	77.05	83.75	201.00	479.05
Multiplied by
$ 1.10^{$ 1.10}	$ 1.10	$ 1.10	$ 1.10
Gross receipts from
.750-liter bottles	$ 84.76	$ 92.13	$ 221.10	$ 526.96
Liter bottles:
Number of 6-oz.
glasses/bottle1	3.35	3.35	3.35	3.35
Multiplied by number
of bottles sold	167	142	269	181
Total glasses sold	559.45	475.70	901.15	606.35
Multiplied by
$ 1.102	$ 1.10	$ 1.10	$ 1.10	$ 1.10
Gross receipts from
liter bottles	$ 615.40	$ 523.27	$ 991.27	$ 666.99
1.5-liter bottles:^{Number of 6-oz.}
glasses/bottle1	6.70	6.70	6.70	6.70
Multiplied by number
of bottles sold	-0-	96	42	42
Total glasses sold	-0-	643.20	281.40	281.40
Multiplied by
$ 1.102	-0-	$ 1.10	$ 1.10	$ 1.10
Gross receipts
from 1.5-liter
bottles	-0-	$ 707.52	$ 309.54	$ 309.54
3-liter bottles:^{Number of 6-oz.}
glasses/bottle1	13.40	13.40	13.40	13.40
Multiplied by number
of bottles sold	24	12	-0-	-0-
Total glasses sold	321.60	160.40	-0-	-0-
Multiplied by $ 1.102	$ 1.10	$ 1.10	-0-	-0-
Gross receipts
from 3-liter bottles	$ 353.76	$ 176.88	-0-	-0-
Total gross receipts
from wine	$ 1,053.92	$ 1,499.80	$ 1,521.91	$ 1,503.49

TABLE V GROSS RECEIPTS FOR LIQUOR SALES
Liter bottles
Number of 1.3-oz.
servings/bottle^{1998 Tax Ct. Memo LEXIS 218">*273}	21.65	21.65	21.65	21.65
Multiplied by
number of bottles
purchased	1,114	1,658	2,087	1,140
Number of 1.3-oz.
servings sold	24,118.10	35,895.70	45,183.55	24,681
Multiplied
by $ 1.15^{$ 1.15}	$ 1.15	$ 1.15	$ 1.15
Gross receipts
from liter
bottles	27,735.82	41,280.06	51,961.08	28,383.15
.750-liter bottles
Number of 1.3-oz.
servings/bottle1	16.24	16.24	16.24	16.24
Multiplied by
number of bottles
purchased	60	79	12	9
Number of 1.3-oz.
servings sold	974.40	1,282.96	194.88	146.16
Multiplied
by $ 1.152	$ 1.15	$ 1.15	$ 1.15	$ 1.15
Gross receipts
from .750-liter
bottles	1,120.56	1,475.40	224.11	168.08
Total gross
receipts from
liquor sales	$ 28,856.38	$ 42,755.46	52,185.19	28,551.23

TABLE VI GROSS RECEIPTS -- SUMMARY
Keg beer gross
receipts	$ 10,246.07	$ 16,497.79	$ 18,439.02	$ 16,983.56
Canned beer gross
receipts	13,928.80	12,380.00	11,121.60	25,665.80
Bottled beer gross
receipts	135,011.80	116,740.80	118,071.80	62,920.00
Wine gross receipts	1,053.92	1,499.80	1,521.91	1,503.49
Liquor gross receipts	28,856.38	42,755.46	52,185.19	28,551.23
Total gross receipts	189,096.97	189,873.85	201,339.52	135,624.08
Less: Reported
gross receipts	84,179.57	73,801.36	73,865.70	104,254.74
Unreported gross
receipts	104,917.40	116,072.49	127,473.82	31,369.34

Footnotes

1. Respondent's trial memorandum concedes a decreased deficiency for 1987 and asserts increased deficiencies for 1988, 1989, and 1990. As petitioner has raised no objection to the increased deficiencies, the issues relating to such increased deficiencies appear to have been tried by consent. Rule 41(b)(1). We, however, do not address the increased deficiencies because the decision we reach below results in deficiencies less than those determined by respondent in the notice of deficiency.↩
1. 50 percent of the interest due on the deficiency.↩
2. At the Bullfrog, a boilermaker is a shot of whiskey with a beer chaser on the side.↩
3. The plea agreement, dated May 15, 1995, stated the following factual basis for petitioner's plea of guilty:
The defendant failed to report substantial cash purchases of beer, liquor, and wine on his federal income tax returns for the 1988, 1989, and 1990 tax years. The defendant knew the amounts stated on his tax returns as expenses were not accurate. The defendant signed the aforementioned federal income tax returns under penalty of perjury, knowing the returns falsely stated the amount of expenditures for beer, liquor, and wine. ↩
4. Petitioner ordered and paid for all of the inventory purchased for the Bullfrog.↩
5. The parties agree, however, that petitioner's reported purchases are not in dispute.↩
6. During 1988, 1989, and 1990, petitioner purchased Bartyles and James brand wine coolers. Respondent did not include the sale of these wine coolers in the reconstruction of petitioner's gross receipts for the years in issue.↩
1. A Keg of beer contains either 198 10-ounce or 165 12-ounce glasses of beer. The average cost of a keg of beer was $ 23.13 during 1987, $ 23.30 during 1988, $ 25.61 during 1989, and $26.20 during 1990.↩
2. Each case contains 24 bottles or cans of beer. During April 1990, petitioner began purchasing loose cans of beer; before that time canned beer was purchased in six-packs bound with plastic (i.e., four six-packs per case).↩
3. There are 33.5 ounces in each liter bottle of wine or liquor.↩
4. There are 25.13 ounces in each .750-liter bottle of wine or liquor.↩
7. Each 1.5-liter bottle of wine contains the equivalent of two .750-liter bottles.↩
8. Each 3-liter bottle of wine contains the equivalent of four .750-liter bottles.↩
9. Calculations were stipulated for trial, for respondent and petitioner, respectively, solely for the purpose of showing how the parties calculated gross receipts. Neither party stipulated the accuracy, correctness, or reasonableness of the other party's calculations.↩
10. We note that the deficiency notice indicates gross receipts in amounts greater than those shown in respondent's stipulated computations. The difference, we assume, is that gross receipts as determined in the deficiency notice include sales of food and soft drinks. As respondent made no argument concerning food and soft drink sales at the Bullfrog, any issues relating to such sales appear to have been conceded. Rybak v. Commissioner, 91 T.C. 524">91 T.C. 524, 91 T.C. 524">566↩ (1988).
11. Petitioner's returns reflect reported gross receipts in excess of the amounts stipulated for trial. Petitioner reported gross receipts of $131,448, $121,149, $121,483, and $157,613 for 1987, 1988, 1989, and 1990, respectively. The difference, we assume, is that petitioner's reported gross receipts included sales of food and soft drinks which are not in issue in the instant case.↩
12. We note that several back copies of Nite-Line are not available for the years in issue.↩
13. A "cadet car" is a "stock car" which is defined as a racing car having the basic chassis of a commercially produced assembly- line model. Webster's Third New International Dictionary (1993).↩
14. Sec. 6501(a)reads as follows:
SEC. 6501(a)↩. General rule. -- Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) * * * , and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.
15. In the alternative, respondent contends that petitioner's return for 1990 is subject to the 6-year period of limitations applicable under sec. 6501(e)(1)(A)↩ because that return omitted substantial amounts of gross income. We need not consider respondent's alternative argument because we find fraud for each of the years in issue, including 1990.
16. Sec. 6653(b)(1)(A) and (B) reads as follows:
SEC. 6653(b). Fraud. --
(1) In general. -- If any part of any underpayment (as defined in subsection (c)) of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to the sum of --
(A) 75 percent of the portion of the underpayment which is attributable to fraud, and
(B) an amount equal to 50 percent of the interest payable under section 6601↩ with respect to such portion for the period beginning on the last day prescribed by law for payment of such underpayment (determined without regard to any extension) and ending on the date of the assessment of the tax or, if earlier, the date of the payment of the tax.
17. Sec. 6653(b) reads, in pertinent part, as follows:
SEC. 6653(b). Fraud. --
(1) In general. -- If any part of any underpayment (as defined in subsection (c)) of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
18. Sec. 6663 reads, in pertinent part, as follows:
SEC. 6663(a)↩. Imposition of Penalty. -- If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

19. The following computation demonstrates that petitioner would have unreported income even if, in addition to the expenses and purchases conceded by respondent, we credited petitioner with the full amount of the band expenses he claims:

	1987	1988	1989	1990
Unreported gross receiptsn1	$ 104,917	$ 116,072	$ 127,474	$ 31,369
Less:
Band expensesn2	36,300	39,600	32,175	13,200
Band advertising expenses	1,596	1,740	1,416	1,596
7-percent New York
State sales taxn3	7,344	8,125	8,923	2,195
Additional purchasesn4	39,228	42,787	48,061	13,620
Total unreported income	20,449	23,820	36,899	758

n1 These figures (rounded to the nearest dollar) represent

petitioner's unreported gross receipts as recalculated in

accordance with this opinion. See the discussion concerning

gross receipts in part II of this opinion, infra.

n2 These figures represent the amount of band expenses

claimed by petitioner in the stipulated computations. As

discussed infra, we conclude that petitioner is entitled to

deduct band expenses in the amount of $18,150 for 1987, $19,800

for 1988, $16,088 for 1989, and $13,200 for 1990.

n3 Respondent concedes that petitioner may deduct the 7-

percent New York State sales tax associated with any addition

gross receipts received by petitioner from the sale of beer,

wine, or liquor. We computed the sales tax shown above on the

basis of the amount of petitioner's unreported gross receipts as

recalculated in accordance with this opinion.

n4 These figures represent the additional purchases

allowed by respondent in the deficiency notice and in the

stipulation of facts.↩

20. On brief, both parties make extensive arguments concerning who bears the burden of proof with respect to the amount of the deficiency. We need not decide the situs of the burden of proof, however, because the record in the instant case is sufficient for us to reach our findings of fact without resort to the burden of proof.↩
21. The parties also disagree as to the proper discretionary use allowance to be applied to the sale of keg beer. Petitioner's stipulated computations assert that a discretionary use allowance of 15 percent should be applied to all over-the-bar keg beer sales. Respondent's stipulated computations, however, apply a greater discretionary use allowance of 17 percent for all over-the-bar sales of keg beer. We conclude that respondent's stipulated calculations concede that 17 percent is the proper discretionary use allowance for over-the-bar sales of keg beer.
Neither party asserts that a discretionary use allowance would be proper for to-go sales of kegs. Accordingly, we do not apply a discretionary use allowance in deciding petitioner's gross receipts from to-go sales of kegs.
1. See Table I in the attached appendix.↩
22. The parties also disagree as to the proper discretionary use allowance to be applied in the determination of gross receipts from the sale of canned beer. Each party stipulated the other's computations on the basis of the respective party's own discretionary use contention. Respondent contends that the proper discretionary use allowance for over-the-bar sales of canned beer is 8.3 percent. Petitioner contends that a 15-percent discretionary use allowance for over-the-bar canned beer sales is proper and correct. Petitioner, however, abandoned that position on brief, as he presented no argument concerning the proper discretionary use allowance for canned beer sales and the record contains no evidence of the proper allowance. Accordingly, we conclude that petitioner has conceded that the proper discretionary use allowance for over-the-bar canned beer sales is 8.3 percent. Rybak v. Commissioner, 91 T.C. 524">91 T.C. 524, 91 T.C. 524">566 (1988).
Neither party asserts that a discretionary use allowance would be proper for to-go sales of canned beer. Accordingly, we do not apply a discretionary use allowance in deciding petitioner's gross receipts from to-go sales of canned beer.
23. Petitioner indicated that premium brands generally did not sell well.↩
24. Petitioner testified that he switched to cans from bottles during 1990 because the cans were cheaper, easier to handle, and took up less space in the storeroom. Additionally, petitioner viewed the cans as a safer alternative to bottles, which had been known to cause injury when thrown by rowdy patrons.↩
25. Respondent notes that petitioner purchased 5,600 six-packs of beer during 1987 and 1988 (i.e., 732 cases in 1987 + 668 cases in 1988 = 1,400 cases x 4 six-packs per case = 5,600 six-packs). On the basis of the fact that the Bullfrog is open 7 days a week, 365 days a year, respondent contends that petitioner would have sold over seven six-packs a day, if petitioner in fact sold all canned beer to go during the 2-year period (i.e., 5,600 six-packs/730 days = 7.7 six- packs per day). Accordingly, respondent contends that the 34-day stipulated sample should contain 238 entries of $3.25 under category I (i.e., 34 days x 7 six-packs per day = 238 entries).
26. Moreover, we note that there is no analysis accompanying the stipulated sampling of cash register tapes, and respondent introduced no evidence as to how the sample was selected. We therefore accord such evidence little weight in our analysis and decision.↩
27. Total six-packs purchased each year was determined as follows:
↩
1987 1988 1989
Cases of beer purchased 732 668 616
Multiplied by 24 cans/case 24 24 24
Total cans purchased 17,568 16,032 14,784
Divided by 6 cans/pack 6 6 6
Total six-packs 2,928 2,672 2,464
1. See Table II in the attached appendix.
28. Ms. Stacey indicated that she generally gave patrons free drinks upon the purchase of three or four rounds. She also testified that she usually dispensed the last shot in each bottle of liquor free of charge.↩
1. See Table III in the attached appendix.↩
29. Petitioner and respondent also disagree on the proper discretionary use percentage to be applied in the calculation of gross receipts from the sale of wine. Petitioner asserts that 15 percent is the proper discretionary use allowance for all wine sales. On brief, and in respondent's stipulated calculations, however, respondent contends that the proper discretionary use allowance for wine sales is 20 percent for each .750-liter bottle, 1.5-liter bottle, and 3-liter bottle and 40 percent for each liter bottle. We conclude that respondent has conceded that the proper discretionary use allowance for wine sales is 20 percent or 40 percent, for the respective size bottle.↩
30. 25.13 ounces per bottle divided by 4 glasses per bottle = 6.28 ounces per glass.↩
31. The transcript reads, in pertinent part, as follows: Q. Now, you testified that its over ice, correct?
A. Well, either way. They could drink a glass of wine up, you know --Q. Right.
A. -- on the rocks, and you'd probably only get three glasses or two-and-a-half out of a bottle. If you use a 10-ounce glass -- if you had a 25 ounce glass and you had a 10 -- a 10-ounce glass, you'd only get 2 and one-half) glasses of wine. ↩
1. See Table IV in the attached appendix.↩
32. We confirmed respondent's computation as follows:
↩
Ounces per .750-liter bottle 25.13
Less: 16-percent discretionary use allowance 4.02
Ounces available for sale 21.11
Divided by 21 shots per bottle 21
Ounces per shot 1.005 (rounded
to 1)
33. If 20 shots are sold from each liter bottle, petitioner contends that each shot is at least 1.65 ounces (i.e., 33 ounces divided by 20 shots = 1.65 ounces per shot). If 22 shots are sold from each liter bottle, petitioner contends that each shot is at least 1.5 ounces (i.e., 33 ounces divided by 22 shots = 1.5 ounces per shot). The parties stipulated that each liter bottle contains 33.5 ounces of liquor; we are unsure why petitioner used 33 ounces per bottle in his argument on brief.↩
34. Petitioner purchased .750-liter bottles and liter bottles of liquor as follows:
↩
Quantity Purchased
Item Purchased 1987 1988 1989 1990
Liquor:
Liter bottles 1,114 1,658 2,087 1,140
.750-liter bottles 60 79 12 9
Total bottles
purchased 1,174 1,737 2,099 1,149
35. We determined that each liquor drink contained 1.3 ounces of liquor as follows:
Ounces in each liter bottle 33.50
Less: 16-percent discretionary use allowance 5.36
Ounces available for sale 28.14
Divided by 21 shots per bottle 21
Ounces per shot 1.34 (rounded
to 1.3)
Respondent conceded on brief that 16 percent is the proper discretionary use allowance for liquor sales.↩
1. See Table V in the attached appendix.↩
36. See Table VI in the attached appendix.↩
37. Citing Lerch v. Commissioner, 877 F.2d 624">877 F.2d 624 (7th Cir. 1989), affg. T.C. Memo. 1987-295, respondent also argues that Cohan v. Commissioner, 39 F.2d 540">39 F.2d 540 (2d Cir. 1930), should not be invoked where the claimed but unsubstantiated deductions are of a sort for which the taxpayer could have and should have maintained the necessary records. Absent stipulation to the contrary, the instant case is appealable to the Court of Appeals for the Second Circuit. Thus, efficient and harmonious judicial administration calls for us to apply the Cohan rule. Golsen v. Commissioner, 54 T.C. 742">54 T.C. 742, 54 T.C. 742">757 (1970), affd. 445 F.2d 985">445 F.2d 985↩ (10th Cir. 1971).

	1987	1988	1989
Cases of beer purchased	732	668	616
Multiplied by 24 cans/case	24	24	24
Total cans purchased	17,568	16,032	14,784
Divided by 6 cans/pack	6	6	6
Total six-packs	2,928	2,672	2,464

	Quantity Purchased
Liquor:
Liter bottles	1,114	1,658	2,087	1,140
.750-liter bottles	60	79	12	9
Total bottles
purchased	1,174	1,737	2,099	1,149

38. Petitioner computed the amount of his deductible band expenses as follows:

	1987	1988	1989	1990
Advertisements in Night-Line
Magazine	44	48	39	44
Nights/bands in each advertisement	x3	x3	x3	x2
Total band/nights advertised	132	144	117	88
Week night bands	44	48	39
Average week night price per band	x $ 225	$ 225	x $ 225	-- n1
Thursday night band expense	$ 9,990	$ 10,800	$ 8,775
Friday night bands advertised	44	48	39	44
Average price per Friday nihgt
band	x $ 300	x $ 300	x $ 300	x $ 300
Friday night band expense	$ 13,200	$ 14,400	$ 11,700	$ 13,200
Saturday night bands advertised	44	48	49	44
Average price per Saturday night
band	x $ 300	x $ 300	x $ 300	x $ 300
Saturday night band expense	$ 13,200	$ 14,400	$ 11,700	$ 13,200
Total band expenses	$ 36,300	$ 39,600	$ 32,175	$ 26,400

n1 Petitioner's computation for 1990 reflects the fact that he cut back on week night bands during 1990.↩

39. As respondent failed to argue the applicability of sec. 274(d)(4) with respect to the race car expenses claimed by petitioner, we conclude that respondent has conceded that petitioner's race car is not listed property subject to the substantiation requirements of sec. 274(d)↩.

1. n1 Each keg sold over the bar generated $82.17 in gross receipts, determined as follows:

↩

Ounces per keg	1,980
Less: 17%-discretionary use allowance	336.60
Ounces sold	1,643.40
Divided by 10 oz.	10
Number of 10-oz. drafts/keg	164.34
Multiplied by $ 0.50/draft	$ 0.50
Gross receipts/kegs sold
over the bar	$ 82.17

2. Gross receipts were determined by multiplying the total number of kegs sold to go each year by cost plus $5 (i.e., 40 kegs x $28.13 for 1987, 40 kegs x $28.30 for 1988, 40 kegs x $30.61 for 1989, and 40 kegs x $31.20 for 1990).↩

1. The number of individual cans sold over the bar was determined as follows:

↩

	1987	1988	1989	1990
Total cases purchased	732	668	616	1,217
Multiplied by 24 cans/case	24	24	24	24
Total cans purchased	17,568	16,032	14,784	29,208
Divided by 6 cans/pack	6	6	6	6
Total six-packs	2,928	2,672	2,464	4,868
Less: six-packs sold to go	1,352	1,352	1,352	1,352
six packs sold over the bar	1,576	1,320	1,112	3,516
Multiplied by 6 cans/pack	6	6	6	6
Total individual cans
sold over the bar	9,456	7,920	6,672	21,096

2. The discretionary use allowance was determined as follows:
9,456 individual cans + 24 cans/case = 394 cases x 2 cans/case = 788 cans
7,920 individual cans + 24 cans/case = 330 cases x 2 cans/case = 660 cans
6,672 individual cans + 24 cans/case = 278 cases x 2 cans/case = 556 cans
21,096 individual cans + 24 cans/case = 879 cases x 2 cans/case = 1,758 cans↩
3. $ 1.10 reflects the price per can sold over the bar.↩
4. Gross receipts from to-go sales were determined by multiplying the number of six-packs sold to go each year by $ 3.25 (i.e., 1,352 six-packs x $ 3.25 = $ 4,394).↩
1. The discretionary use allowance was determined by multiplying the number of cases purchased by 2 cans/case.↩
2. $ 1.10 represents the price per bottle sold.↩

1. The number of 6-oz. glasses per bottle was determined as follows:

↩

	.750-liter	Liter	1.5-liter	3-liter
Ounces/bottle	25.13	33.50	50.26	100.52
Less: discretionary
use allowance
(20% for .750-,
1.5-, and 3-liter
bottles, 40% for
liter bottles)	5.03	13.40	10.05	20.10
Ounces sold/bottle	20.10	20.10	40.21	80.42
Divide by 6 oz.	6	6	6	6
Number of 6-oz.
glasses/bottle	3.35	3.35	6.70	13.40

2. $ 1.10 reflects the price per glass of wine.↩
3. One 1.5-liter bottle is equivalent to two .750-liter bottles.↩
4. One 3-liter bottle is equivalent to four .750-liter bottles.↩
1. The number of 1.3-oz. servings per bottle was determined as follows:
↩
Liter .750-liter
Ounces per bottle 33.50 25.13
Less: 16%-discretionary use allowance 5.36 4.02
Ounces sold per bottle 28.14 21.11
Divide by 1.3 oz. 1.30 1.30
Number of 1.3-oz. servings/bottle 21.65 16.24
2. $ 1.15 reflects the price charged per liquor drink.↩

	Liter	.750-liter
Ounces per bottle	33.50	25.13
Less: 16%-discretionary use allowance	5.36	4.02
Ounces sold per bottle	28.14	21.11
Divide by 1.3 oz.	1.30	1.30
Number of 1.3-oz. servings/bottle	21.65	16.24

Document Info

Docket Number： Tax Ct. Dkt. No. 13395-96

Judges： WELLS

Filed Date： 6/22/1998

Precedential Status： Non-Precedential

Modified Date： 11/20/2020

Authorities (23)

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Wright v. Commissioner ( 1985 )

Condor Merritt v. Commissioner of Internal Revenue ( 1962 )

Cohan v. Commissioner of Internal Revenue ( 1930 )

Grace M. Powell, of the Estate of O. E. Powell, Deceased v. ... ( 1958 )

Miller v. Commissioner ( 1990 )

Haldane M. Plunkett v. Commissioner of Internal Revenue ( 1972 )

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Kenneth Poy Lee and Chow Joy Lee v. United States ( 1972 )

Ronald L. Lerch and Dalene Lerch v. Commissioner of ... ( 1989 )

United States v. Andrew Garguilo ( 1977 )

Joseph R. Dileo, Mary A. Dileo, Walter E. Mycek, Jr., ... ( 1992 )

Beaver v. Commissioner ( 1970 )

Gajewski v. Commissioner ( 1976 )

Clayton M. Korecky, Jr. v. Commissioner of Internal Revenue ( 1986 )

Asphalt Industries, Inc. v. Commissioner of Internal Revenue ( 1967 )

William C. Siravo v. United States ( 1967 )

Robert W. Bradford v. Commissioner of Internal Revenue ( 1986 )

Michael A. Schaffer and Jennifer Schaffer v. Commissioner ... ( 1985 )

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View All Authorities »

	Over-the-Bar	To-Go	Total
Year	Gross Receipts	Gross Receipts	Gross Receipts ¹⁹⁸⁷	$ 9,120.87	$ 1,125.20	$ 10,246.07
1988	15,365.79	1,132.00	16,497.79
1989	17,214.62	1,224.40	18,439.02
1990	15,735.56	1,248.00	16,983.56

	Wine
Year	Gross Receipts ¹⁹⁸⁷	$ 1,053.92
1988	1,499.80
1989	1,521.91
1990	1,503.49

	Liquor
Year	Gross Receipts ¹⁹⁸⁷	$ 28,856.38
1988	42,755.46
1989	52,185.19
1990	28,551.23

Ounces per .750-liter bottle	25.13
Less: 16-percent discretionary use allowance	4.02
Ounces available for sale	21.11
Divided by 21 shots per bottle	21
Ounces per shot	1.005 (rounded
	to 1)

	Quantity Purchased
Item Purchased	1987	1988	1989	1990
Liquor:
Liter bottles	1,114	1,658	2,087	1,140
.750-liter bottles	60	79	12	9
Total bottles
purchased	1,174	1,737	2,099	1,149

Ounces in each liter bottle	33.50
Less: 16-percent discretionary use allowance	5.36
Ounces available for sale	28.14
Divided by 21 shots per bottle	21
Ounces per shot	1.34 (rounded
	to 1.3)