“Indirect Audit” to Determine Cash Receipts in Restaurant Okay

The audit division of the Department of Taxation and Finance found the petitioner’s cash sales receipts inadequate to perform an audit.  The audit division therefore used a one-day “indirect audit” to estimate what petitioner’s cash sales were (a one-day observation of the operation of the restaurant).  In upholding the method used by the audit division to determine under-reporting of cash receipts, the Third Department wrote:

Where,  as here, a  taxpayer fails to maintain sufficient records, the Division may  resort to an  indirect audit and  the taxpayer challenging such an  audit has  the “burden of  establishing by  clear and  convincing evidence  that the audit method or tax assessment [was] erroneous” … .   Although  a  longer audit period might have produced a more accurate representation of petitioner’s business activity, nonetheless petitioner failed to meet  its heavy  burden of establishing the unreasonableness or inaccuracy of the length used and method employed by the Division in its indirect audit under  the circumstances … .  Matter of Hwang v Tax Appeals Tribunal …, 512991, 3rd Dept 4-11-13