Court Opinion

ID: 9914955
Source: CourtListenerOpinion
Date Created: 2024-01-03 20:02:55.344749+00
Date Added: 2024-06-11T13:15:43.868981
License: Public Domain

United States Tax Court

                               T.C. Memo. 2024-1

     JESSE ALVARADO AND ESTATE OF MARIA DE LOURDES
      VELASQUEZ, DECEASED, JESSE ALVARADO, SPECIAL
                    ADMINISTRATOR,
                       Petitioners

                                         v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                    __________

Docket No. 15059-18.                                      Filed January 3, 2024.

                                    __________

Jesse Alvarado and Estate of Maria de Lourdes Velasquez, Deceased,
Jesse Alvarado, Special Administrator, pro sese.

Paulmikell A. Fabian and Sarah A. Herson, for respondent.

        MEMORANDUM FINDINGS OF FACT AND OPINION

       COPELAND, Judge: The Commissioner of Internal Revenue
(Commissioner) determined that Petitioners, Jesse Alvarado and Maria
de Lourdes Velasquez, have federal income tax deficiencies of $892,461
and $746,337 for 2011 and 2012 (years in issue), respectively. 1 These
deficiencies stem primarily from alleged unreported gross receipts and
overstated costs of goods sold at Mr. Alvarado’s used car sales business.
The Commissioner further determined late-filing additions to tax under
section 6651(a)(1)2 of $222,014 and $186,514 for 2011 and 2012,

       1 Ms.  Velasquez passed away in August 2021 after this case went to trial.
Because all the relevant events occurred while she was alive, we continue to refer to
Mr. Alvarado and Ms. Velasquez together as “Petitioners.”
       2 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation

                                Served 01/03/24
                                            2

[*2] respectively. For Mr. Alvarado only, the Commissioner determined
civil fraud penalties under section 6663 of $669,346 and $559,753 for
2011 and 2012, respectively. In the event that the fraud penalties for
Mr. Alvarado are not upheld for either or both years in issue, the
Commissioner has determined as an alternative accuracy-related
penalties. See I.R.C. § 6662(a). The Commissioner conveyed his
deficiency and penalty determinations in two separate notices of
deficiency, one with a salutation addressing only Mr. Alvarado and one
with a salutation addressing only Ms. Velasquez. 3 Both notices were
dated April 27, 2018.

       After concessions by the parties (detailed below), 4 the issues for
decision are as follows:

        1.      Whether Petitioners had unreported gross receipts of
                $1,223,387 and $24,294 for 2011 and 2012, respectively;

        2.      Whether Petitioners overreported costs of goods sold by
                $514,583 and $1,200,242 for 2011 and 2012, respectively;

        3.      Whether Petitioners overreported various expenses on
                Schedules C, Profit or Loss from Business (Sole
                Proprietorship), in the aggregate amounts of $37,052 and
                $103,705 for 2011 and 2012, respectively;

        4.      Whether Petitioners are liable for the section 6651(a)(1)
                late-filing additions to tax for one or both of the years in
                issue; and

references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and Rule references are to the Tax Court Rules of Practice and
Procedure. Some dollar amounts are rounded.
         3 While it is clear from the context of the notice of deficiency containing the

civil fraud penalties and alternative accuracy-related penalties that it was intended
only for Mr. Alvarado, his notice was sent by certified mail to “Jesse Alvarado and
Maria de Lourdes Velasquez a.k.a. Marylou Velasquez” and contained a continuation
sheet and worksheets titled in both Petitioners’ names. Similarly, the notice of
deficiency intended only for Ms. Velasquez, which determined late-filing additions to
tax but no penalties, was sent by certified mail to “Jesse Alvarado & Maria de Lourdes
Velasquez a.k.a. Marylou Velasquez” with worksheets titled in both their names.
        4 Before trial the parties agreed that Ms. Velasquez qualifies under section

6015(b) for “innocent spouse” relief from joint and several liability for the tax
deficiencies at issue and the section 6651(a)(1) additions to tax.
                                    3

[*3]   5.    Whether Mr. Alvarado is liable for the section 6663 civil
             fraud penalties or, alternatively, the section 6662 accuracy-
             related penalties for one or both of the years in issue.

                         FINDINGS OF FACT

      Some of the facts have been stipulated and are so found. By this
reference we incorporate the parties’ First Stipulation of Facts and the
accompanying Supplements and Exhibits. Mr. Alvarado and Ms.
Velasquez resided in California when they timely filed their Petition.

I.     South Bay Autos and Alvarado Tax Service

       Mr. Alvarado worked as a commercial lender at Comerica Bank
for approximately 25 years before opening a used car sales business,
South Bay Autos (South Bay), which he operated as a sole proprietorship
from 2008 to 2014. Mr. Alvarado rented premises in Hawthorne,
California, to sell used cars and (as a side business) to prepare tax
returns. He held a preparer tax identification number (PTIN) from the
Internal Revenue Service (IRS) from 2009 through at least 2012, and he
prepared several dozen tax returns during the years in issue under the
business name Alvarado Tax Service. His tax return clients were
primarily South Bay customers, whom he charged in the range of $60–
$200 for the additional service.

       Mr. Alvarado’s business model at South Bay relied heavily on
credit, both for his own inventory purchases and for his customers’. Mr.
Alvarado bought much of his inventory at used car auctions using loan
proceeds from Dealer Services Corp. (DSC). DSC merged with another
company sometime in 2013 to form NextGear Capital (NextGear). Mr.
Alvarado would need to pay back these purchase loans within 45 days
or otherwise face high interest charges from DSC (and, later, NextGear).

       Mr. Alvarado therefore wanted to sell his inventory quickly; yet
his potential customers from the Hawthorne area often had limited
income. To address this problem, Mr. Alvarado contracted with Topaz
Financial Services (Topaz), and later with Premier Auto Credit
(Premier), to provide credit to his customers. In a typical sale, Mr.
Alvarado and the customer would sign a sales contract, with the
customer making a small downpayment; then Mr. Alvarado would
assign the contract to Topaz (or later to Premier) in exchange for
advance payment as further detailed below. The customer would make
all subsequent payments directly to the financer.
                                     4

[*4] For his part, Mr. Alvarado took the used car sale contracts
periodically (and typically in batches) to the financers, who would pay
him the face value of the contracts less (1) a reserve amount, which Mr.
Alvarado would receive only once the customer fully paid the loan
balance, and (2) the outstanding value of any previous contracts that
had become uncollectible in the meantime. The financers deducted the
latter amount pursuant to Mr. Alvarado’s agreement to fully guarantee
each customer’s loan.       This business model eventually became
financially unsustainable, and Mr. Alvarado closed South Bay in or
around 2014, after drawing on his pensions and personal savings.

II.    Tax Returns

       Mr. Alvarado prepared and filed his and Ms. Velasquez’s joint
federal income tax returns for tax years 2009 through 2012, all of which
were filed late. The 2011 return was due on April 17, 2012, but was not
filed until February 4, 2013. The 2012 return was due on April 15, 2013,
but was not filed until June 27, 2014. Mr. Alvarado and Ms. Velasquez
neither filed for nor received an extension of time to file their returns for
either of the years in issue.

      The 2011 and 2012 joint returns did not separately identify
income from Alvarado Tax Service, although such income was minimal.
Those returns likewise did not report the income Petitioners earned
from subleasing real estate for a few months in 2012. Other than these
small amounts, Petitioners’ only taxable income (and the only income
reported on their returns) came from South Bay used car sales.

       Mr. Alvarado attached Schedules C to the 2011 and 2012 joint
returns, reporting various categories of income and expenses for South
Bay, along with calculations of costs of goods sold. On both Schedules C,
all original entries (excluding the results of arithmetic operations on
some entries) end in “0” or “5.” The 2011 Schedule C reported net profit
of $13,900, while the 2012 Schedule C reported net profit of $30,035.
After application of personal deductions, personal exemptions, the
earned income tax credit, and/or the child tax credit (but no withholding
or estimated tax payments), Petitioners claimed a refund due of $4,405
for 2011 and $281 for 2012.

III.   IRS Examination

      Petitioners’ 2011 joint income tax return was selected by the IRS
for audit in or around 2014. Marianna Kaplan (RA Kaplan), the IRS
                                    5

[*5] revenue agent who primarily conducted the 2011 examination, was
subsequently assigned to audit Petitioners’ 2012 joint return as well.

       Petitioners failed to reply to RA Kaplan’s initial letter requesting
a meeting. After RA Kaplan sent a followup letter demanding a meeting
on a particular date as well as production of relevant documents,
Petitioners (or their representative at the time) called to reschedule the
meeting twice. When RA Kaplan finally met Mr. Alvarado at South
Bay’s business premises, he did not have any of the requested
documents available for her. He kept no books or records for the
business other than “car jackets,” which RA Kaplan examined at a
subsequent visit. Each car jacket was a folder containing dozens of
documents relating to Mr. Alvarado’s sale of a particular car, such as
copies of the sale contract and financing agreement; some also contained
evidence of his original inventory purchase. Mr. Alvarado kept the car
jackets in boxes, roughly separated by year of purchase but not
otherwise organized. Each jacket indicated the car’s date of sale to a
customer and its vehicle identification number (VIN), a unique 17-
character identifier assigned to any on-road vehicle sold in the United
States. RA Kaplan found 265 car jackets for cars sold in 2011 and 300
for 2012.

       Mr. Alvarado represented to RA Kaplan that he used the car
jackets to compute his income as reported on Petitioners’ tax returns.
RA Kaplan accordingly used the car jackets to sum the purchase prices
of cars sold by South Bay during the years in issue. Using this method,
RA Kaplan calculated gross sales of $2,764,693 in 2011 and $2,765,744
in 2012. These amounts exceeded the gross receipts reported on
Petitioners’ returns: $1,815,410 for 2011 and $2,538,525 for 2012.

       Since many of the car jackets also contained invoices for South
Bay’s original purchases of the cars, and since Mr. Alvarado provided no
other documents or records relating to his purchases, RA Kaplan also
tallied the invoices. However, she excluded all invoices with purchase
dates before 2011 because Mr. Alvarado kept no inventory records, and
she could not determine whether he had already deducted the cost of
these pre-2011 cars for the years he bought them. RA Kaplan’s review
of the invoices yielded costs of goods sold calculations of $156,165 for
2011 and $434,930 for 2012. These amounts were considerably lower
than those reported on Petitioners’ returns: $1,515,510 for 2011 and
$2,146,780 for 2012.
                                        6

[*6] To investigate these discrepancies, RA Kaplan summoned
complete deposit and expenditure records (including images of canceled
checks) for Mr. Alvarado’s accounts with Comerica Bank and Bank of
America during the years in issue. RA Kaplan tallied these deposits and
debits, excluding deposits that appeared to be nontaxable (such as
refunds) and excluding debits that appeared to be nondeductible (such
as restaurant meals and clothing purchases). RA Kaplan also excluded
debits that appeared to be for car inventory purchases unless the VIN
matched that of a car which, according to the car jackets, was sold in
2011 or 2012. RA Kaplan conducted this bank accounts analysis without
help or input from Petitioners, as they had stopped cooperating and
refused to meet with her except when officially summoned.

       After some adjustments made during Petitioners’ internal appeal
with the IRS and in this litigation (as described below), the updated
bank accounts analysis yielded taxable deposits of $3,038,797 in 2011
and $2,562,819 in 2012 and costs of goods sold of $1,000,927 in 2011 and
$946,538 in 2012. As explained above, these calculations of costs of
goods sold do not include any amount for cars that South Bay sold in
either year in issue but for which Mr. Alvarado could not substantiate a
purchase with a matching VIN.

IV.   IRS Appeals and Pretrial Discovery

       During Petitioners’ internal appeal with the IRS, Mr. Alvarado
continued his pattern of canceling meetings and providing requested
documents late or incompletely if at all. However, he did produce
several documents of potential relevance to redetermining Petitioners’
income. First, he submitted dealer statements from NextGear and
buyer receipts from AutoNation Auto Auction and South Bay Auto
Auction 5 (together, auto auctions). The NextGear statements list by
VIN all cars that South Bay purchased during the years in issue using
loans from NextGear. The buyer receipts list by VIN some of the cars
South Bay purchased from the auto auctions during the years in issue.
RA Kaplan crosschecked the VINs from these statements and buyer
receipts with the VINs appearing in the 2011 and 2012 car jackets.
When she found a match for a car whose car jacket did not include a
purchase invoice, she added the purchase price from the statements or
receipts to her calculation of cost of goods sold.

      5 South Bay Auto Auctions is not related to Mr. Alvarado’s South Bay business.
                                   7

[*7] Additionally, before trial Mr. Alvarado came forward with 8
canceled checks from 2011 and 22 from 2012, each written by South Bay
to an auction house for a car included in the car jackets but not
previously included in RA Kaplan’s calculations of costs of goods sold.
The Commissioner added the amounts of these checks to RA Kaplan’s
totals, yielding costs of goods sold of $1,000,927 for 2011 and $946,538
for 2012.

       During the internal IRS appeal, Mr. Alvarado also submitted
several hundred pages of printouts from his account with DealerCenter,
an inventory management system for car dealers. The printouts contain
information on several hundred cars South Bay purchased during the
years in issue, including VIN, purchase price, original purchase date
(that is, the date on which South Bay acquired the car), and the “asking
price” for sale to customers. However, there is no indication in these
records of when, if ever, the cars were sold to customers nor whether the
“asking price” matched the eventual sale price. Mr. Alvarado and his
employees created these records contemporaneously with inventory
purchases in the years in issue.

       Some of the cars listed in the DealerCenter records have VINs
matching those in the car jackets that Mr. Alvarado supplied to RA
Kaplan during the examination. At trial Mr. Alvarado submitted
supplemented versions of RA Kaplan’s spreadsheets, in which he added
purchase prices for cars whose VINs appeared in both the car jackets
and the DealerCenter records but whose purchase prices RA Kaplan had
not previously recorded. The Commissioner refused to recognize these
additional claimed inventory purchases, on grounds of suspicion about
the authenticity of the DealerCenter printouts.

      Before trial Mr. Alvarado also produced quarterly summary
reports for the years in issue prepared contemporaneously by Topaz for
South Bay. Each quarterly report contains (1) a listing of the car
contracts (by selling date and dollar amount) that South Bay sold to
Topaz during that quarter, (2) a listing of the payments that Topaz
actually made to South Bay during the quarter, (3) a listing of all
outstanding loans (by borrower name, VIN, and outstanding loan
balance) originated by South Bay but which Topaz deemed uncollectible
during that quarter, and (4) a listing of all beginning and outstanding
loan balances (by loan date, car model and year, borrower name, and
beginning and outstanding loan balances). The reports show a total of
291 car purchases that Topaz financed for South Bay customers in 2011
and 160 purchases financed in 2012.
                                   8

[*8] RA Kaplan’s bank accounts analysis included canceled checks
that South Bay wrote to Topaz totaling $111,006 in 2011 and $80,519 in
2012. The Commissioner made no adjustments to either gross receipts
or cost of goods sold on account of the Topaz reports or the canceled
checks.

      Finally, before trial Mr. Alvarado produced transaction
summaries prepared by Premier for approximately 80 car loans that
Premier purchased from South Bay between June and December 2012.
Each summary lists (among other things) the original loan balance, the
amount paid to South Bay (as reduced by various offsets, including a
reserve withheld—at least initially—by Premier), the date of payment
to South Bay, borrower name, car model and year, and VIN. Again, the
Commissioner made no adjustments to RA Kaplan’s bank accounts
analysis on account of the Premier transaction summaries.

V.    Final Deficiency Determinations

       After the agreed adjustments made during the internal IRS
appeal and the discovery period of litigation, RA Kaplan revised her
bank accounts analysis to yield the following calculations of Schedule C
gross income, which the Commissioner asks us to uphold:
                                        9

[*9]                            2011                                2012

                   Form 1040,      Determined          Form 1040,      Determined
                   Schedule C      by the IRS          Schedule C      by the IRS

Gross Receipts      $1,815,410         $3,038,797       $2,538,525         $2,562,819

Cost of Goods
                    (1,515,510)        (1,000,927)      (2,146,780)         (946,538)
Sold

Advertising          (107,620)              (60,922)     (144,250)          (114,015)

Commissions             (8,880)          —                 (48,500)          —

Insurance (other
                        (8,250)              (1,548)        (7,800)           (1,015)
than health)

Legal and
Professional           (17,220)          —                 (18,200)          —
Services

Office Expense          (4,250)             (14,945)        (4,800)           (8,370)

Rent                 (113,100)          (109,283)        (103,500)          (103,497)

Taxes and
                        (4,180)         (169,834)           (4,440)         (119,484)
Licenses

Utilities              (18,250)              (6,796)       (18,500)          —

Cell Phone              (4,250)          —                  (6,220)          —

Occasional Help        —                 —                  (5,500)          —

Towing                 —                     (2,050)       —                 (10,807)

Referral Fee           —                      (177)        —                     (600)

Refunds                —                    (22,678)       —                 (18,400)

Car and Truck
                       —                (239,263)          —                (228,480)
Expenses

   Net Profit          $13,900         $1,410,374          $30,035         $1,011,613
                                    10

[*10] During this litigation, the parties stipulated the correctness of the
expense amounts in RA Kaplan’s bank accounts analysis (as reflected in
the preceding table) in the following categories for both years in issue:
advertising, office expenses, rent, taxes and licenses, towing, referral
fee, refunds, and car and truck expenses. The parties also stipulated
the correctness of RA Kaplan’s calculation of utilities expenses for 2011.

                                OPINION

I.    Burden of Proof

       Generally, the Commissioner’s determinations in a notice of
deficiency are presumed correct, and the taxpayer bears the burden of
proving them erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933). In cases of unreported income, the Commissioner must
establish an evidentiary foundation connecting the taxpayer with an
income-producing activity or otherwise demonstrate that the taxpayer
actually received income. Walquist v. Commissioner, 152 T.C. 61, 67
(2019). Once the Commissioner makes the required threshold showing,
the burden shifts to the taxpayer to prove by a preponderance of the
evidence that the Commissioner’s determinations are arbitrary or
erroneous. Id. at 67–68.

II.   Income Reconstruction

       If a taxpayer fails to maintain adequate records of income as
required under section 6001, the Commissioner may reconstruct his
income by any reasonable method that clearly reflects income. See
I.R.C. § 446(b); Holland v. United States, 348 U.S. 121, 130–32 (1954);
Harper v. Commissioner, 54 T.C. 1121, 1129 (1970). One indirect
method of income reconstruction is a bank accounts analysis,
incorporating both deposits and expenditures. We have long accepted
bank accounts analysis as a reasonable reconstruction method. See, e.g.,
Nicholas v. Commissioner, 70 T.C. 1057, 1064–65 (1978); Harper, 54
T.C. at 1129. While not conclusive, bank deposits are prima facie
evidence of income. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).
The taxpayer bears the burden of showing that the deposits came from
a nontaxable source. See Rule 142(a); Harper, 54 T.C. at 1129. For
purposes of a bank accounts analysis, all money deposited into a
taxpayer’s account is presumed to be taxable unless the taxpayer can
show otherwise. DiLeo v. Commissioner, 96 T.C. 858, 868 (1991), aff’d,
959 F.2d 16 (2d Cir. 1992). However, the Commissioner must account
                                   11

[*11] for any nontaxable deposits or deductible expenses of which he is
aware. Id.

       Mr. Alvarado failed to maintain adequate records of South Bay’s
income. The collection of car jackets he provided to RA Kaplan was
patently incomplete, as indicated by the large gap for each year in issue
between (a) the sum of sale prices listed in the jackets and (b) RA
Kaplan’s bank accounts analysis of gross receipts. (Indeed, Mr.
Alvarado himself conceded as much.) The number of car jackets for 2011
(265) is considerably less than the number of car purchases financed by
Topaz that year (291).

       The other records Mr. Alvarado produced during the IRS internal
appeal and this litigation are likewise insufficient to compute net
income. The DealerCenter records do not indicate when (if ever) a car
was sold or the amount of South Bay’s gross receipts for any sale.
Neither the Topaz reports nor the Premier transaction summaries
indicate how much South Bay originally paid for the cars it sold to
customers. And the Topaz quarterly reports contain VINs only for the
cars whose buyers defaulted on their loans. Overall, we cannot
generally match the gross receipts that South Bay received from Topaz
or Premier with other evidence in the record concerning South Bay’s
purchase prices for its inventory (i.e., cost of goods sold). If all these
pieces of evidence could somehow be collated to yield full and accurate
records of South Bay’s net profit (which appears unlikely), Mr. Alvarado
has made no effort to show us how. We therefore generally accept the
Commissioner’s reconstruction of Petitioners’ net income via RA
Kaplan’s bank accounts analysis, subject to certain adjustments
discussed below.

      A.     Gross Receipts

       Mr. Alvarado disputes the Commissioner’s refusal to reduce
South Bay’s gross receipts by the sum of payments from South Bay to
Topaz: $100,313 in 2011 and $80,519 in 2012. Mr. Alvarado testified at
trial that these amounts represented downpayments that customers
made to South Bay and that South Bay then remitted to Topaz when
Topaz purchased those customers’ loans. On brief the Commissioner
argues that Mr. Alvarado failed to show a paper trail of funds moving
from customers to Topaz via South Bay, with one exception: One
customer made a downpayment of $395 to South Bay on November 2,
2011, while a check (written close in time) from South Bay to Topaz on
November 7, 2011, for $827.42 includes a written breakdown for (in
                                   12

[*12] part) $394.78 corresponding to a loan number that matches a loan
on one of the contemporaneous Topaz quarterly reports.

       We found credible Mr. Alvarado’s testimony that the only
payments South Bay made to Topaz were related to customer
downpayments. On this point we return to the bank accounts analysis
on which South Bay’s income was reconstructed and reiterate that a
taxpayer may bring forward proof that certain deposits should not be
considered taxable. Where, as here, payments were made back to Topaz
for customer deposits related to sales contracts assigned to Topaz and
funded by Topaz, the corollary return of a portion of that funding should
reduce gross income.

       In addition, Mr. Alvarado argues that we should reduce South
Bay’s gross receipts by the full amount of the Topaz “returned loans”—
that is, the outstanding balances of customers who defaulted on the
loans that Topaz acquired, as listed in the quarterly summary reports.
South Bay guaranteed these loans. However, each quarterly summary
report reduces South Bay’s “Total Accounts Receivable” by “Total
Returns,” indicating that (at least in many cases) Topaz simply offset its
payments to South Bay for new loans by a running total of previously
purchased loans that had gone into default. In that case, South Bay
would not transfer money to Topaz to make good on its guaranty of the
customers’ loans; rather, its gross receipts from Topaz would already
reflect the reduction. Therefore, reducing South Bay’s gross receipts by
the amount of the returned loans would effectively give Petitioners a
double deduction.

       We therefore modify the Commissioner’s bank accounts analysis
to account for the proven payments from South Bay to Topaz ($100,313
in 2011 and $80,519 in 2012), yielding gross receipts of $2,938,484 for
2011 and $2,482,300 for 2012.

      B.     Cost of Goods Sold

       Cost of goods sold is a reduction made in the course of computing
gross income. Treas. Reg. § 1.61-3(a). It is not a deduction and so is not
subject to the limitations of section 162, which generally denies a
deduction for business expenses unless they are “ordinary and
necessary” for the business in question. See, e.g., Metra Chem Corp. v.
Commissioner, 88 T.C. 654, 661 (1987); Nunn v. Commissioner, T.C.
Memo. 2002-250, 84 T.C.M. (CCH) 403, 408. In the case of cash basis
taxpayers such as Petitioners, the cost of goods sold reduces gross
                                   13

[*13] income only for the tax year when cash or other property is
received in exchange for the goods. See Treas. Reg. § 1.61-3(a) (“[A]n
amount cannot be taken into account in the computation of cost of goods
sold any earlier than the taxable year in which economic performance
occurs with respect to the amount . . . .”).

       A taxpayer is required to maintain sufficient permanent records
to substantiate all components of reported net income, including cost of
goods sold. See I.R.C. § 6001; Treas. Reg. § 1.6001-1(a), (e). However,
the Court may estimate cost of goods sold under a variation of the Cohan
rule, see Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930),
even when cost of goods sold is not fully substantiated, provided that
there is a reasonable basis for making such an estimate, Olive v.
Commissioner, 139 T.C. 19, 34 (2012), aff’d, 792 F.3d 1146 (9th Cir.
2015). Under the Cohan rule, if a taxpayer adequately establishes that
he paid or incurred a deductible expense but does not establish the
precise amount, then the Court may in some instances estimate the
allowable deduction. Cohan v. Commissioner, 39 F.2d at 543–44. But
the taxpayer must provide some reasonable basis for such an estimate.
See Vanicek v. Commissioner, 85 T.C. 731, 742–43 (1985). In making an
estimate under the Cohan rule, the Court “bear[s] heavily if it chooses
upon the taxpayer whose inexactitude is of his own making.” Cohan v.
Commissioner, 39 F.2d at 544. While the Cohan rule by its terms applies
to deductible expenses, this Court has adapted it to estimate cost of
goods sold as well. See, e.g., Olive, 139 T.C. at 34; Alterman v.
Commissioner, T.C. Memo. 2018-83, at *30–31; Huzella v.
Commissioner, T.C. Memo. 2017-210, at *7–9.

       The Commissioner’s final position on brief is that Petitioners are
entitled to cost of goods sold of $1,000,927 for 2011 and $946,538 for
2012. These amounts comprise the purchase prices of all cars for which
Mr. Alvarado provided proof of both purchase and sale in 2011 or 2012,
as identified by matching VINs. The Commissioner did not allow cost of
goods for any purchases occurring before 2011, out of concern that Mr.
Alvarado may have immediately deducted such purchases. As a result,
the Commissioner takes the extreme position that many of the used cars
sold in the years in issue had no inventory cost whatsoever. The
Commissioner’s analysis results in costs of goods sold of 34% of sales for
2011 and 38% for 2012, making gross margins for South Bay’s used cars
sales in the years in issue well over 60%, an implausible amount.

      We hold that the law does not require this bizarre result. Rather,
we include in South Bay’s costs of goods sold for the years in issue the
                                   14

[*14] purchase prices of any cars sold in those years for which Mr.
Alvarado provided credible records along with an estimate of the cost of
other cars sold during the years in issue for which we can conservatively
estimate an inventory cost. For this purpose, we find the DealerCenter
printouts credible as contemporaneous business records: For several
hundred cars, they list VIN, car model and year, mileage, vehicle cost,
date in stock, and asking price. There is nothing facially suspicious
about them. The Commissioner objected to these records for the
following reasons: (1) Mr. Alvarado never provided or mentioned these
records during the examination; (2) some of the printouts list a “Date in
Stock” of January 1, 2011, yet it seems unlikely that auto auctions were
open on a national holiday; and (3) some of the printouts list a “Days in
Stock” number of around 3,000, approximately the number of days
between early 2011 and mid-2019, when Mr. Alvardo first provided the
printouts to the IRS. The Commissioner suggests that Mr. Alvarado
may have retroactively generated these records for purposes of his
internal appeal with the IRS, casting serious doubt on their accuracy.

        The Commissioner’s concerns ultimately are unconvincing. Mr.
Alvarado credibly testified that he subscribed to and used DealerCenter
during the years in issue. Only about five records out of several hundred
list a Date in Stock of January 1, 2011. Two records list a Date in Stock
of January 1, 2012. As well, it appears that all the printouts listing
“Days in Stock” of over 3,000 also list the “Vehicle Status” as “In
Inventory.” (Those with a Vehicle Status of “Sold” tend to list Days in
Stock of under 200.) This is not surprising considering Mr. Alvarado’s
testimony that he printed the records during his internal appeal with
the IRS, after temporarily regaining access to his DealerCenter account
(for which he had stopped paying years earlier). It stands to reason that
the records, accessed years later, would contain apparent temporal
anomalies for cars that Mr. Alvarado or his employees had never marked
“Sold.” Overall, we find it more likely than not that the DealerCenter
records are authentic and reliable, despite Mr. Alvarado’s somewhat
confused answers to questions at trial about why he did not provide
them to RA Kaplan during the initial examination.

       Mr. Alvarado submitted to the Court a marked-up version of RA
Kaplan’s car purchase spreadsheets, adding purchase prices that she did
not include (typically because the purchase date was pre-2011) but that
appeared under matching VINs in the DealerCenter printouts. For the
reasons stated above, we accept these additions to South Bay’s cost of
goods sold for the years in issue, except for (1) a $3,000 purchase price
for a 1998 Toyota Sienna sold on September 4, 2012, and (2) a $3,595
                                       15

[*15] purchase price for a 2000 Toyota Camry sold on May 20, 2012. RA
Kaplan’s spreadsheets indicate that these same cars were previously
sold on May 13 and January 20, 2012, respectively, leading us to
conclude that the initial customers returned the vehicles or that South
Bay repossessed them. In either case South Bay should receive an
addition to cost of goods sold for these cars only once. We also have
cross-checked the low-outlier purchase prices on RA Kaplan’s
spreadsheets (with a purchase-to-sales price ratio of under 0.1) with the
DealerCenter printouts. Having found two discrepancies, we increase
the purchase price of a 2004 Chrysler Pacifica (sold on November 13,
2012) from $493.77 (per RA Kaplan’s spreadsheets) to $5,740 (per
DealerCenter), and we increase the purchase price of a BMW 5 Series
(sold on November 20, 2012) from $642.97 (per RA Kaplan’s
spreadsheets) to $6,340 (per DealerCenter). 6

       These additions yield tentative costs of goods sold of $1,224,593
for 2011 and $1,238,416 for 2012, as more thoroughly detailed at
Appendixes A and B. However, we cannot take these figures as final
because the cars whose purchase prices are included in these figures
(hereafter, purchase-verified cars) clearly do not account for all of South
Bay’s gross receipts for the years in issue. For instance, when we sum
the sale prices (based on the contracts in the car jackets) of the purchase-
verified cars, we arrive at gross receipts of $2,139,642 for 2011 and
$2,298,644 for 2012. These sums are substantially lower than the gross
receipts we found above ($2,938,484 for 2011 and $2,482,300 for 2012).
Further, South Bay’s actual gross receipts for the purchase-verified cars
are almost certainly lower still: Mr. Alvarado’s testimony, the Topaz
reports, and the Premier summaries all demonstrate that South Bay
often received only a fraction of a car’s jacket-listed sale price (at least
during the year of sale), because of a combination of (1) the financers’
policy of holding back a reserve amount and (2) the frequency of
customer defaults on their loans (in which case South Bay had to
reimburse the financers).

      Since the purchase-verified cars clearly do not account for all of
South Bay’s gross receipts, our foregoing estimates of cost of goods
sold—which were based only on the purchase-verified cars—are
inadequate. See Cohan v. Commissioner, 39 F.2d at 544 (“[T]he Board

       6 On the marked-up versions of RA Kaplan’s spreadsheets, Mr. Alvarado added

some missing purchase prices by citing copies of canceled checks rather than the
DealerCenter printouts. We ignore these citations because the checks either match
the DealerCenter printouts or do not indicate either VIN or car model/year.
                                    16

[*16] [of Tax Appeals] should make as close an approximation as it can
. . . . [T]o allow nothing at all appears to us inconsistent with saying
that something was spent.”). We must estimate the gaps between the
gross receipts from the purchase-verified cars and the total gross
receipts we found above, and then extrapolate cost of goods sold figures
for the unrecorded car sales responsible for the gap.

       However, even our first step—estimating the gaps—is not
straightforward. Mr. Alvarado was unable to show the Court what
South Bay’s actual gross receipts were for any of the purchase-verified
cars, and the records he submitted do not clearly reveal this information.
(For instance, the Topaz reports do not indicate the VINs or models of
the cars whose sales contracts were assumed by Topaz, nor how much
Topaz paid for these contracts individually.) It might be possible to infer
South Bay’s actual gross receipts for some of the purchase-verified cars
by cross-checking the copies of canceled checks paid to South Bay, the
Topaz reports, the Premier summaries, and RA Kaplan’s spreadsheets
(as supplemented by Mr. Alvarado). However, we will not do Mr.
Alvarado’s work for him. His burden of proof includes the burden of
clearly explaining how admissible evidence supports his case, and he . . .
may not merely “dump” data for the Court to wade through on its own.
“Judges are not expected to be mindreaders. Consequently, a litigant
has an obligation to ‘spell out [his] arguments squarely and distinctly,’
or else forever hold [his] peace.” Rivera-Gomez v. De Castro, 843 F.2d
631, 635 (1st Cir. 1988) (quoting Paterson-Leitch Co. v. Mass. Mun.
Wholesale Elec. Co., 840 F.2d 985, 990 (1st Cir. 1988)); see also Hale v.
Commissioner, T.C. Memo. 2010-229, 100 T.C.M. (CCH) 345, 347 (“We
need not (and shall not) undertake the task of sorting through the
voluminous evidence [the taxpayer] has provided in an attempt to see
what is, and what is not, adequate substantiation of the items on [the
taxpayer’s] return.”).

        Thus, for purposes of the Cohan rule as adapted to cost of goods
sold, we will “bear heavily” on Mr. Alvarado, see Cohan v. Commissioner,
39 F.2d at 544, in part by assuming that South Bay’s actual gross
receipts for each purchase-verified car equaled the sale price for that car
listed in the car jacket. Accordingly, we estimate gross receipts from the
purchase-verified cars of $2,139,642 for 2011 and $2,298,644 for 2012.
See Appendixes A and B. However, our assumption leaves us with gross
receipts gaps of $798,842 in 2011 and $183,656 in 2012—receipts that
we have not yet associated with any cost of goods sold.
                                    17

[*17] At this point the Cohan rule turns a friendlier eye on Mr.
Alvarado, as we may estimate some associated costs of goods sold for the
gross receipts in the gaps, provided some reasonable basis exists for
doing so. See Cohan v. Commissioner, 39 F.2d at 544; Huzella v.
Commissioner, T.C. Memo. 2017-210, at *7–9 (estimating cost of goods
sold using eBay records and sales catalogs); Arizaga v. Commissioner,
T.C. Memo. 2016-57, at *6–7 (estimating cost of goods sold for a
restaurant that kept no relevant records); Heinbockel v. Commissioner,
T.C. Memo. 2013-125, at *67–68 (estimating cost of goods sold for a
personal shopping business at 50% of gross receipts).

       As a threshold matter, we do have proof that for the following
gross receipts there was no associated cost of goods sold or that there is
no reasonable basis for estimating such cost: (1) $5,500 from the
September 4, 2012, resale of a 1998 Toyota Sienna (as discussed above);
(2) $7,900 from the May 20, 2012, resale of a 2000 Toyota Camry (as
discussed above); (3) $2,350 of fees charged to Alvarado Tax Service
customers for preparation of tax returns in 2012; and (4) $2,580 from a
subtenant at South Bay’s business premises in Hawthorne, California
in 2012. We are then left with $798,842 of gross receipts for 2011 and
$165,326 of gross receipts for 2012 that appear to derive from car sales
but for which we have not yet made any provision for costs of goods sold.

        In analyzing the costs of goods sold for which we do have data, we
note that the figures range from a low of 5% to over 100% of the ultimate
sale prices, with an average cost of goods sold margin of 56.4% in 2011
and 54.2% in 2012. See Appendixes A and B. Using these average
margins as the basis for our estimate yields an average gross profit
margin of around 45%, which is likely high given South Bay’s financial
struggles and ultimate demise. However, given that we “bear heavily”
on Mr. Alvarado for his failure to keep adequate records, see Cohan v.
Commissioner, 39 F.2d at 544, we will proceed with these reasonable
estimates. Applied to the remaining gross receipts in the gap, a cost of
goods sold margin of 56.4% yields an estimated $450,547 of additional
cost of goods sold for 2011, and a cost of goods sold margin of 54.2% yields
an estimated $89,607 of additional cost of goods sold for 2012. We add
these estimates to the figures for the purchase-verified cars ($1,224,593
in 2011 and $1,238,416 in 2012) to find total cost of goods sold of
$1,675,140 for 2011 and $1,328,023 for 2012.
                                  18

[*18] C.     Expenses

      The parties stipulated most of the Commissioner’s revisions to
South Bay’s Schedule C expenses for both years in issue, which were
based on RA Kaplan’s bank accounts analysis. Unstipulated expense
categories for both years in issue are the following: commissions,
insurance (other than health), legal and professional services, and cell
phone expense. For 2012, utilities and occasional help are also
unstipulated.

       At trial and on brief the only expense category Mr. Alvarado
challenged was legal and professional services. He testified that he
hired a lawyer, Larry Rucker, to defend him in a suit brought against
South Bay under the Americans with Disabilities Act. We find this
testimony credible and accordingly allow a legal and professional
services deduction of $10,000 for 2011 and $5,000 for 2012, based on the
checks paid to “Law Offices of Fred Rucker” summarized in RA Kaplan’s
bank account expenditures spreadsheets.

       Since Mr. Alvarado did not dispute the Commissioner’s
determinations in any of the other unstipulated expense categories at
trial or on brief, we conclude that Petitioners have abandoned the
disagreements they raised in their Petition about these expenses. See
Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001).

      D.     Redetermined Net Profit

       After accounting for the foregoing adjustments to gross receipts,
cost of goods sold, and expenses, we redetermine Schedule C net profit
of $625,848 for 2011 and $544,609 for 2012. As stated earlier,
Petitioners reported net profit of only $13,900 for 2011 and $30,035 for
2012.
                                           19

       [*19]              Form 1040,            Determined by    Found by the
               2011
                          Schedule C               the IRS          Court

       Gross Receipts        $1,815,410             $3,038,797       $2,938,484

       Cost of Goods
                             (1,515,510)           (1,000,927)       (1,675,140)
       Sold

       Legal and
       Professional             (17,220)             —                  (10,000)
       Services

       Other Expenses         (268,780)              (627,496)         (627,496)

          Net Profit            $13,900            $1,410,374         $625,848

                         Form 1040,         Determined by        Found by the
               2012
                         Schedule C            the IRS              Court

       Gross Receipts       $2,538,525             $2,562,819        $2,482,300

       Cost of Goods
                            (2,146,780)              (946,538)       (1,328,023)
       Sold

       Legal and
       Professional            (18,200)              —                   (5,000)
       Services

       Other Expenses         (343,510)              (604,668)         (604,668)

          Net Profit           $30,035             $1,011,613          $544,609

III.     Additions to Tax and Penalties

       The Commissioner determined section 6651(a)(1) late-filing
additions to tax against Petitioners and section 6663 fraud penalties
against Mr. Alvarado. 7 The Commissioner has also determined against

        7 The Commissioner’s initial assertion of the section 6663 penalties, using

Letter 950 (the “30-day letter”), did not distinguish between Mr. Alvarado and Ms.
                                         20

[*20] Mr. Alvarado, as an alternative to the fraud penalties, section
6662 accuracy-related penalties for underpayments of tax by reason of
substantial understatements of income tax.

       Under section 7491(c), the Commissioner bears the burden of
production regarding penalties and additions to tax asserted against
individuals and must come forward with sufficient evidence indicating
that it is appropriate to impose them. Higbee v. Commissioner, 116 T.C.
438, 446–47 (2001). One part of this burden is to show compliance with
section 6751(b)(1), which provides that “[n]o penalty . . . shall be
assessed unless the initial determination of such assessment is
personally approved (in writing) by the immediate supervisor of the
individual making such determination.” See Graev v. Commissioner,
149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C.
460 (2016). Petitioners have not disputed that the Commissioner
satisfied the supervisory approval requirement, and we see no evidence
in the record to suggest otherwise.

       A.      Section 6651 Late-Filing Additions to Tax

       Section 6651(a)(1) imposes an addition to tax for the failure to file
a return on or before the due date (including extensions) unless the
taxpayer can establish that such failure was “due to reasonable cause
and not due to willful neglect.” (After five months or more of delay, the
addition equals 25% of the amount of tax otherwise due.) To
demonstrate reasonable cause, a taxpayer must show that he exercised
ordinary business care and prudence but was nevertheless unable to file
on time. United States v. Boyle, 469 U.S. 241, 246 (1985); Treas. Reg.
§ 301.6651-1(c)(1).

       Petitioners filed their 2011 joint income tax return over 9 months
late, and they filed their 2012 return over 14 months late. At trial Mr.
Alvarado explained the late filings as the result of his being
overwhelmed with South Bay business and of his need to await financial
information from Topaz. However, this Court has held that work
demands—even extreme ones—do not constitute reasonable cause for
purposes of section 6651(a)(1). Dustin v. Commissioner, 53 T.C. 491, 507
(1969), aff’d, 467 F.2d 47 (9th Cir. 1972). And Mr. Alvarado failed to
explain how, if at all, he used the Topaz reports to prepare the tax
returns (which is not self-evident).          We therefore sustain the

Velasquez. The notices of deficiency made clear that the fraud penalties did not apply
to Ms. Velasquez by virtue of section 6663(c).
                                        21

[*21] Commissioner’s imposition of the section 6651(a)(1) addition to tax
on Mr. Alvarado. 8

       B.      Section 6663 Fraud Penalties

        Section 6663(a) imposes a penalty equal to 75% of the taxpayer’s
underpayment of tax that is due to fraud. A taxpayer commits fraud
when he intentionally contrives to evade a tax liability that he knows to
be owing. Maciel v. Commissioner, 489 F.3d 1018, 1026 (9th Cir. 2007),
aff’g in part, rev’g in part T.C. Memo. 2004-28; Petzoldt v. Commissioner,
92 T.C. 661, 698–99 (1989). If any portion of the underpayment is
attributable to fraud, the entire underpayment will be treated as
fraudulent unless the taxpayer establishes by a preponderance of the
evidence that part of the underpayment is not due to fraud. I.R.C. §
6663(b). Section 6664(a) provides that for purposes of the fraud penalty,
“underpayment” generally means “the amount by which any tax
imposed by this title [i.e., the Code] exceeds . . . the amount shown as
the tax by the taxpayer on his return.”

      The Commissioner has the burden of proving fraud by clear and
convincing evidence. See I.R.C. § 7454(a); Rule 142(b). To carry that
burden for a given tax year, the Commissioner must show that (1) an
underpayment of tax exists for that year and (2) some part of the
underpayment is attributable to fraud. See I.R.C. §§ 6663(a), 7454(a);
DiLeo, 96 T.C. at 873. The existence of fraud is a question of fact to be
resolved upon consideration of the entire record. DiLeo, 96 T.C. at 874.
Fraud is never presumed and must be established by clear and
convincing evidence of fraudulent intent.             Baumgardner v.
Commissioner, 251 F.2d 311, 322 (9th Cir. 1957), aff’g T.C. Memo. 1956-
112. Since direct evidence of a taxpayer’s fraudulent intent is seldom
available, fraud may be shown by circumstantial evidence. Bradford v.
Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), aff’g T.C. Memo. 1984-
601; Petzoldt, 92 T.C. at 699. The taxpayer’s entire course of conduct
may establish the requisite fraudulent intent.         Niedringhaus v.
Commissioner, 99 T.C. 202, 210–11 (1992).

      The circumstantial evidence by which the Commissioner may
prove fraud includes various “badges of fraud” on which courts often
rely. See Bradford v. Commissioner, 796 F.2d at 307; DiLeo, 96 T.C. at
875. These badges focus on whether the taxpayer engaged in certain

       8 Again, Ms. Velasquez is not liable for this penalty by virtue of the relief

provided by section 6015(b), as conceded by the Commissioner.
                                     22

[*22] conduct that is indicative of fraudulent intent, such as
(1) understating income, (2) failing to maintain adequate records,
(3) offering implausible or inconsistent explanations, (4) concealing
income or assets, (5) failing to cooperate with tax authorities,
(6) engaging in illegal activities, (7) providing incomplete or misleading
information to a tax return preparer, (8) filing false documents,
including false income tax returns, (9) failing to file tax returns or filing
them late, and (10) engaging in extensive dealings in cash. See Bradford
v. Commissioner, 796 F.2d at 307–08; Parks v. Commissioner, 94 T.C.
654, 664–65 (1990). The existence of any one badge is not dispositive,
but the existence of several badges may be persuasive circumstantial
evidence of fraud. Niedringhaus, 99 T.C. at 211. We may also consider
a taxpayer’s education, training, business experience, and knowledge of
income tax laws in deciding whether he acted with fraudulent intent.
Worsham v. Commissioner, T.C. Memo. 2012-219, 104 T.C.M. (CCH)
129, 134, aff’d, 531 F. App’x 310 (4th Cir. 2013); see also Chico v.
Commissioner, T.C. Memo. 2019-123, at *46–47, aff’d, No. 20-71017,
2021 U.S. App. LEXIS 30243 (9th Cir. Oct. 8, 2021).

       We must now decide whether the Commissioner has introduced
clear and convincing evidence that Mr. Alvarado has an underpayment
(as defined in section 6664(a)) for each year in issue and that at least
some portion of the underpayment for each year is due to fraud on Mr.
Alvarado’s part. We begin by noting the obvious implication of our
deficiency analysis, that either Mr. Alvarado did not keep adequate
records of South Bay’s used car inventory purchases and sales or he did
not provide such records to the Commissioner and this Court. In either
event, under our caselaw we may accept a bank accounts analysis for
South Bay’s gross income and adapt the Cohan rule to estimate South
Bay’s costs of goods sold. Any reasonable application of these rules
yields tax liabilities in excess of what Petitioners reported on their 2011
and 2012 returns (both of which showed a refund due, even before
accounting for any withholding or estimated tax payments). We now
clarify that the Cohan rule (and its adaptation to cost of goods sold)
contributes to determining—rather than merely estimating—the tax
imposed by the Code for those taxpayers who do not keep (or at least do
not furnish) adequate financial records. Therefore, the Commissioner
has satisfied his burden of proof for the first element of fraud: There is
clear and convincing evidence that Mr. Alvarado did not keep (or
furnish) adequate records for South Bay and that he underpaid his
income tax for both years in issue within the meaning of section 6664(a).
                                    23

[*23] However, our analysis in this case “b[ore] heavily” on Mr.
Alvarado because his own behavior of keeping incomplete and scattered
records created the need for estimates in the first place. In particular,
we assumed (unfavorably to Mr. Alvarado) that for each of the purchase-
verified cars South Bay received the full sale price listed in the contract
in the car jacket. And we then assumed (unfavorably to Mr. Alvarado)
that all cars other than the purchase-verified cars had average cost of
goods sold margins relative to those of the purchase-verified cars (this
latter margin being measured under the first unfavorable assumption).
However, the Topaz reports and Premier summaries show it to be just
as likely that South Bay received only fractions of the listed sale prices
for most of the cars it sold, owing to the subprime financing
arrangements for most customers.

       If we use the Topaz-financed cars as a basis for estimating
average receipts for all cars, we find an average of $7,145 per car in 2011
and $5,720 per car in 2012. (Topaz made total payments to South Bay
of $2,079,310 for 291 contracts in 2011, and it paid $915,239 for 160
contracts in 2012.) Meanwhile, the purchase-verified cars had an
average cost (that is, the price South Bay paid for them) of $6,123 in
2011 and $5,049 in 2012. Using those numbers, the cost of goods sold
margin would be between 86% (in 2011) and 88% (in 2012), much higher
than the figures we determined under the Cohan rule (56.4% in 2011
and 54.2% in 2012). The result would then be gross profit margins
between 12% and 14%, which, after accounting for South Bay’s
expenses, would result in net losses rather than the profitability that we
determined.

       Because we find it just as likely that South Bay had negative net
profit as positive net profit for both years in issue, we lack clear and
convincing evidence that Mr. Alvarado believed he and Ms. Velasquez
owed more tax than they reported and paid. Yet the second component
of the section 6663 fraud penalty requires that the taxpayer knew (and
thus believed) he owed more tax than he reported and paid. See Petzoldt,
92 T.C. at 698. If South Bay in fact had no positive net profit in either
year, then given the evidence that Petitioners had no other substantial
income in either year, Mr. Alvarado likely did not believe he and Ms.
Velasquez owed any positive amount of income tax for either year.

      Mr. Alvarado held a PTIN and prepared returns for some other
taxpayers, and he was a commercial lender at Comerica Bank for over
two decades. However, a trained tax professional in Mr. Alvarado’s
presumptive position—that is, palpably suffering business losses but
                                    24

[*24] devoid of the records to prove it—reasonably could have believed
his business would not have tax liabilities for the years in issue. Cf.
Capp v. Commissioner, T.C. Memo. 1968-53, 27 T.C.M. (CCH) 280, 283
(“[W]e must conclude here that the smattering of knowledge of taxation
and accounting acquired in the [relevant] period and possessed by this
[taxpayer] is not clear and convincing evidence of a specific intent to
evade tax . . . .”). Because we find some probability that South Bay made
zero or negative net profits for the years in issue, we find it meaningfully
probable that Mr. Alvarado did not believe he and Ms. Velasquez were
underreporting or underpaying their income tax.

       True, Mr. Alvarado kept inadequate records for South Bay; he
and Ms. Velasquez filed their tax returns late several years in a row; the
various inputs on the Schedules C that Mr. Alvarado prepared for both
years in issue appear to be estimated (as all amounts end in “0” or “5”);
Mr. Alvarado initially failed to reveal to RA Kaplan that he prepared
some tax returns for pay; and Mr. Alvarado repeatedly delayed meetings
with IRS agents, sometimes failed to appear at meetings absent a
summons, and only inconsistently complied with document requests
(including during the lead-up to trial). We certainly do not condone any
of these practices, and we admonish Mr. Alvarado for his poor behavior.
Nonetheless, these facts are consistent with a mixture of negligence and
being overwhelmed by his failing business venture. They do not add up
to a compelling counterweight to the above considerations regarding the
probability that Mr. Alvarado did not believe he underreported or
underpaid his tax liabilities. The apparent fabrication of inputs on the
Schedules C is perhaps the most concerning factor, but even this is
consistent with Mr. Alvarado’s having a rough sense of what South Bay’s
actual net profits were and trying to “reverse-engineer” those amounts
on the tax returns (perhaps erring on the side of overestimation).

       Although Petitioners underreported and underpaid their income
tax liabilities, we lack clear and convincing evidence that Mr. Alvarado
believed they owed more. Thus, we do not find him liable for the fraud
penalty under section 6663.

      C.     Section 6662 Accuracy-Related Penalties

      Section 6662 provides for a 20% accuracy-related penalty on an
underpayment of tax attributable to (among other things) a substantial
understatement of income tax.         I.R.C. § 6662(a), (b)(2).    An
understatement of income tax generally means the excess of tax
required to be reported on the return over the amount of tax shown on
                                    25

[*25] the return. I.R.C. § 6662(d)(2)(A). In the case of an individual, an
understatement is “substantial” if it exceeds the greater of 10% of the
tax required to be shown on the return or $5,000. I.R.C. § 6662(d)(1)(A).
Unlike the section 6663 fraud penalty, the accuracy-related penalty
requires the Commissioner to carry the burden of production but not the
burden of proof with respect to the accuracy-related penalty. I.R.C.
§ 7491(c); Rule 142(a); Higbee, 116 T.C. at 446–49. Given the amount of
net profit that we have redetermined for each year in issue, Mr.
Alvarado clearly has a substantial understatement of income tax for
each year.

      The accuracy-related penalty under section 6662(a) and (b)(2)
does not apply if the taxpayer had reasonable cause for the substantial
understatement and acted in good faith. I.R.C. § 6664(c)(1). Mr.
Alvarado offered no evidence that he qualifies for the reasonable cause
exception, and we see none in the record. Accordingly, we hold Mr.
Alvarado liable for the accuracy-related penalty on his entire
underpayment for each year in issue.

IV.   Conclusion

        We hold that for the years in issue, in addition to the
Commissioner’s concessions and before the application of section 6015(b)
relief for Ms. Velasquez and her estate, Petitioners’ gross income, cost of
goods sold, and Schedule C expenses must be adjusted as redetermined
above; and Petitioners are liable for the section 6651(a)(1) additions to
tax. Mr. Alvarado is also subject to accuracy-related penalties under
section 6662(a) and (b)(2) for both years in issue.

       We have considered all the arguments made by the parties and,
to the extent they are not addressed herein, we find them to be moot,
irrelevant, or without merit.

      To reflect the foregoing,

      Decision will be entered under Rule 155.
                                                     26

[*26]                             APPENDIX A – 2011
                                                                                  Cost of
                     Date of                                                    Goods Sold     COGS
        VIN            Sale                  Car                 Sales Price     (COGS)        Margin
WAUED68D2WA058468   12/23/2011   98 Audi                            $7,900.00      $3,676.15     46.5%
IGYEC63T92R133421    2/12/2011   2002 Cadillac Escalade           $13,000.00       $7,870.62     60.5%
2FMZA5243BA92177     5/21/2011   2003 Ford Windstar                 $7,900.00      $3,800.00     48.1%
2FTRX17W93CAG7941    8/13/2011   2003 Ford F-150                    $7,350.00      $6,133.61     83.5%
1GKEK63U73J314216    1/10/2011   2003 GMC Yukon                   $13,900.00       $7,918.15     57.0%
4F2YZ0616SKM08491   12/28/2011   2005 Mazda Tribute                 $8,700.00      $5,000.00     57.5%
SAJEA51C03WD37041   11/12/2011   2003 Jaguar X-Type                 $7,900.00      $4,292.69     54.3%
1GCCS19W028188575     9/2/2011   2002 Chevrolet S10 Ext             $9,500.00      $4,770.03     50.2%
WBAGL63444DP71595     1/3/2011   2004 BMW 7 Series                $13,500.00     $14,110.53     104.5%
WDBJF65J818384279    2/24/2011   2001 Mercedes-Benz                 $9,900.00      $6,009.58     60.7%
WDBUF70JX3A221796    3/12/2011   2003 Mercedes-Benz               $14,500.00     $10,569.81      72.9%
WBABM3344YJN63035     6/3/2011   2000 BMW 3 Series                  $6,900.00      $4,400.00     63.8%
2FMZA514828805546    8/28/2011   2002 Ford Windstar                 $5,900.00      $2,932.96     49.7%
WBANA735458818181    7/30/2011   2005 BMW 5 Series                $17,900.00     $12,500.00      69.8%
5UMEU27A21U066589    8/14/2011   2001 Lincoln Navigator             $7,000.00      $6,080.00     86.9%
1GNEK13R4WJ341993    6/25/2011   1998 Chevrolet Tahoe               $8,900.00      $3,100.00     34.8%
1GNDS135532299418    6/26/2011   2003 Chevrolet Trail Blazer        $7,540.33      $5,300.00     70.3%
1G6DM57N730145001    1/23/2011   2003 Cadillac CTS                $10,900.00       $6,177.07     56.7%
SALTY15422A742641   10/20/2011   2002 Land Rover Discovery          $6,240.00      $3,850.42     61.7%
2GCEC19T7Y1159954    5/25/2011   2000 Chevrolet Silverado 1500      $9,900.00      $5,013.54     50.6%
                                                       27

[*27]
WBAGN63412DR07821    1/16/2011   2002 BMW 7 Series               $16,000.00   $10,989.52   68.7%
1GKEK63U91J237376    1/26/2011   2001 GMC Yukon                  $11,900.00    $5,900.00   49.6%
1GNEC13T31R116676    2/20/2011   2001 Chevrolet Tahoe            $12,900.00    $6,600.00   51.2%
JT88H68X8Y0024577    7/26/2011   2000 Lexus GS                   $11,900.00    $6,982.93   58.7%
1GYEK63N12R03768     1/20/2011   2002 Cadillac Escalade          $13,400.00    $8,100.00   60.4%
1GCEK19T31E253904     9/4/2011   2001 Chevrolet Silverado 1500    $7,600.00    $4,679.22   61.6%
WDBRF61J81F071332    3/11/2011   2001 Mercedes-Benz C Class      $12,900.00    $6,250.00   48.4%
1GCEC19R4TE244357    9/26/2011   1996 Chevrolet 1500 Extended     $8,900.00    $3,800.00   42.7%
WBAAM3346YCB24891    2/10/2011   2000 BMW 3 Series               $10,900.00    $5,000.00   45.9%
3GKEC16T12G358182     9/2/2011   2000 GMC Yukon XL 1500          $10,900.00    $6,200.00   56.9%
WDBNG75J72A254392    2/18/2011   2002 Mercedes Benz S Class      $12,900.00    $6,500.00   50.4%
STBRN341X25314096   12/26/2011   2002 Toyota Tundra Access        $8,900.00    $5,390.00   60.6%
SAJEA51DX2XC32685    3/12/2011   2002 Jaguar X-Type              $10,900.00    $6,100.00   56.0%
JT6HF10UXX0030523    2/12/2011   1999 Lexus                      $10,900.00    $5,324.19   48.8%
1FMZU63E72UA34725     3/7/2011   2002 Ford Explorer              $10,900.00    $5,180.00   47.5%
WDBNG78J52A239126     8/5/2011   2002 Mercedes Benz S Class      $16,900.00   $13,347.31   79.0%
JT8BD68S8X0074958    1/31/2011   1999 Lexus GS                   $10,900.00    $5,700.00   52.3%
2GIFP22G8Y2128887     4/8/2011   2000 Chevrolet Camero           $11,900.00    $7,192.95   60.4%
JT8BH68X7W0011610    7/28/2011   1998 Lexus GS                   $12,900.00    $6,500.00   50.4%
2HKRL1862XH512692     110/4/11   1999 Honda Odyssey              $10,900.00    $6,000.00   55.0%
WBAEV33452KL67097    8/25/2011   2002 BMW 3 Series               $11,250.00    $5,736.70   51.0%
WBABM3345YJN81012     4/9/2011   2000 BMW 3 Series                $8,900.00    $4,505.00   50.6%
4TEJ062N86Z313083    2/22/2011   2006 Toyota Tacoma Double       $19,900.00   $15,321.84   77.0%
                                                                28

 [*28]
 JNKCV51E23M013611           11/19/2011   2003 Infiniti G                     $10,900.00       $6,200.00       56.9%
 JTKDE177370159013             9/6/2011   2007 Scion TC                       $12,900.00     $10,329.00 9      80.1%
 WDBRF64JX2E002046             5/5/2011   2002 Mercedes Benz S Class          $10,900.00       $7,000.00       64.2%
 WDBNG70J72A242380            2/10/2011   2002 Mercedes Benz S Class          $13,900.00       $6,700.00       48.2%
 WBAFA5355ILM89729             4/8/2011   2001 BMW X5                         $15,900.00       $9,168.55       57.7%
 WAUDC68D61A114547            9/28/2011   2001 Audi A4                        $10,900.00       $5,540.00       50.8%
 WDBNG70J01A174051           11/26/2011   2001 Mercedes Benz S Class          $10,900.00       $5,000.00       45.9%
 2C3HE6GX1H602336             1/27/2011   2001 Chrysler 300                    $6,900.00       $3,542.84       51.3%
 1GNEC13V92R265824            8/14/2011   2002 Chevrolet Tahoe                $12,900.00       $7,776.62       60.3%
 1LNHM87ASYY822595            7/16/2011   2000 Lincoln LS                      $9,900.00       $4,695.00       47.4%
 WDBPJ78J92A019773             9/6/2011   2002 Mercedes Benz CL Class         $22,900.00      $15,000.00       65.5%
 1GNEC16T831215183            8/19/2011   2003 Chevrolet Suburban 1500        $13,900.00       $8,500.00       61.2%
 WDBNG70J5YA29033             9/15/2011   2000 Mercedes Benz S Class          $11,700.00       $5,915.58       50.6%
 3GNCK18R5XG230638            8/11/2011   1999 Chevrolet Tahoe                 $6,900.00       $3,758.50       54.5%
 1GNEC13T83R248013            3/11/2011   2003 Chevrolet Tahor                $13,900.00       $8,000.00       57.6%
 1FMEU15L83LA22622             5/8/2011   2003 Ford Expedition                $10,700.00       $5,500.00       51.4%
 2FTZX07291CA68723            6/17/2011   2001 Ford F150 Super Cab             $9,900.00       $6,266.05       63.3%
 2GIWF55E119254200           12/24/2011   2001 Chevrolet Impala                $6,900.00         $900.71       13.1%
 1GNEC13T01J140318            1/20/2011   2001 Chevrolet Tahoe                $13,400.00       $7,369.55       55.0%
 1FAFP33P82W225238             1/3/2011   2002 Ford Focus                      $4,900.00       $5,900.00      120.4%
 1FMCU04122KA15543            7/21/2011   2002 Ford Focus                     $10,500.00       $4,700.00       44.8%

       9 COGS figures in bold (and the associated COGS margins) were reflected in the DealerCenter printouts but not in RA Kaplan’s

spreadsheets.
                                                        29

[*29]
2MEHM75V73X625035     3/30/2011   2003 Mercury Marauder           $10,900.00   $5,500.00   50.5%
1FAFP34302W255300    10/30/2011   2002 Ford Focus                  $7,900.00   $3,300.00   41.8%
1FMZU62E72Z837311      7/6/2011   2002 Ford Explorer               $7,900.00   $4,747.06   60.1%
W06VR54R9VR153773      2/4/2011   1996 Cadillac Catera             $4,400.00   $2,500.00   56.8%
WDBNG75J71A208897      6/9/2011   2001 Mercedes Benz S Class      $11,900.00   $6,800.00   57.1%
WBAGL634X2DP56418      8/4/2011   2002 BMW 7 Series               $14,250.00   $6,500.00   45.6%
WDBJF55F6VJ030620      6/1/2011   1997 Mercedes Benz E Class       $7,900.00   $5,321.20   67.4%
1GYEK1388XR413817    12/20/2011   1999 Cadillac Escalade           $8,800.00   $3,675.00   41.8%
4T3ZF19CXYU305151     2/20/2011   2000 Toyota Sienna               $7,900.00   $4,000.00   50.6%
1N4DL01D9XC230595     12/6/2020   1999 Nissan Altima               $2,900.00   $1,000.00   34.5%
1GYEK13R0YR165578     9/29/2011   2000 Cadillac Escalade          $10,900.00   $5,000.00   45.9%
1N4AL11D95N923502     4/25/2011   2005 Nissan Altima              $12,900.00   $6,700.00   51.9%
JN8DR09X71W568112     2/15/2011   2001 Nissan Pathfinder           $9,900.00   $4,300.00   43.4%
1GCEC14V4YZ155179     1/13/2011   2000 Chevrolet Silverado 1500   $10,900.00   $5,324.19   48.8%
2FMZA51686BA63385     2/12/2011   2006 Ford Freestar               $9,900.00   $4,420.79   44.7%
WDBNG75J0YA060408     7/16/2011   2000 Mercedes Benz S Class      $13,900.00   $5,900.00   42.4%
WBAAM5345YFR20538     1/15/2011   2000 BMW 3 Series                $9,900.00   $2,950.00   29.8%
LITARN81A0RZ162721   12/19/2011   1994 Toyota Truck                $2,900.00   $1,000.00   34.5%
JTHBF30GG25031425      8/1/2011   2002 Lexus ES                   $14,900.00   $7,000.00   47.0%
JM3LW28G2Y0112956     4/16/2011   2000 Mazda MPV                   $5,900.00   $3,400.00   57.6%
WDBNG70J0YA006422      3/6/2011   2000 Mercedes Benz S Class      $10,900.00   $4,500.00   41.3%
JT8BD68S0X0064974     1/26/2011   1999 Lexus GS 300                $9,900.00   $6,500.00   65.7%
2GCEK19T1X1263177     6/24/2011   1999 Chevrolet Silverado 1500   $10,500.00   $5,072.00   48.3%
                                                     30

[*30]
WBAAM3336YFP68460    6/10/2011   2000 BMW 3 Series               $7,089.00    $4,951.67   69.9%
1GKEC13RXXJ748972     2/8/2011   1999 GMC Yukon                  $7,400.00    $3,400.00   45.9%
1G1ND52183M515735    6/14/2011   2003 Chevrolet Malibu           $7,900.00    $3,987.96   50.5%
1GNDS135222376115    6/19/2011   2003 Chevrolet Trail Blazer    $10,900.00    $5,390.00   49.4%
1GNEC13791R129556    12/8/2011   2001 Chevrolet Tahoe           $10,000.00    $5,900.00   59.0%
4JGAB54E51A247328    8/20/2011   2001 Mercedes Benz ML          $11,900.00    $6,877.65   57.8%
3VWSK69M93M012173    7/20/2011   2003 Volkswagen Jetta           $8,900.00    $4,192.10   47.1%
1GBDV13147D176215    8/30/2011   2007 Chevrolet Uplander         $8,900.00    $4,000.00   44.9%
1GKCC13T91R221865    8/10/2011   2001 GMC Yukon                 $11,900.00    $6,000.00   50.4%
JT8BH68X2Y0025675     2/2/2011   2000 Lexus GS                  $10,900.00    $5,200.00   47.7%
3GNEC16T42G356851   11/29/2011   2002 Chevrolet Suburban         $9,900.00    $7,500.00   75.8%
1GKEC13R4XJ807790     2/6/2011   1999 GMC Yukon                  $8,900.00    $3,850.48   43.3%
2GCEC19V021179665    2/25/2011   2002 Chevrolet Suburban         $9,300.00    $4,405.00   47.4%
WDBNG70J9YA106275    9/30/2011   2000 Mercedes Benz S Class     $12,900.00    $6,340.00   49.1%
JN8DR09X71WS68112    12/9/2011   2001 Nissan Pathfinder          $9,000.00    $4,300.00   47.8%
1GBFG15T341148789     5/9/2011   2004 Chevrolet Express 1500    $14,900.00   $12,000.00   80.5%
5TBRT38121S140345    2/27/2011   2001 Toyota Tundra              $9,900.00    $6,426.29   64.9%
3GKEC16T4YG137345    3/26/2011   2000 GMC Yukon XL 1500          $7,900.00    $4,300.00   54.4%
4JGAB72E01A241435    3/26/2011   2001 Mercedes Benz ML Class    $12,400.00    $5,547.59   44.7%
SALME114X3A135410     4/3/2011   2003 Land Rover Range Rover    $18,999.00   $11,250.00   59.2%
1G6DM57N430143836     5/9/2011   2003 Cadillac CTS              $12,900.00    $6,620.94   51.3%
3GNEC16TX1G131378    1/19/2011   2001 Chevrolet Suburban 1500    $9,900.00    $7,500.00   75.8%
JT88F28G0W5019503   10/26/2011   1998 Lexus ES                   $7,900.00    $5,878.00   74.4%
1N4AL11D76N317925    3/13/2011   2006 Nissan Altima              $9,600.00    $7,000.00   72.9%
                                                     31

[*31]
2GTEC19T221379039    3/20/2011   2002 GMC Sierra 1500 Ext         $9,900.00    $5,225.00   52.8%
1G1ZS52F75F186326    1/24/2011   2005 Chevrolet Malibu            $7,900.00    $3,400.00   43.0%
1GCEC14V71Z110517     4/2/2011   2001 Chevrolet Silverado 1500    $7,900.00    $3,400.00   43.0%
WDBLJ65G4WF034448    1/16/2011   1998 Mercedes Benz CLK           $7,900.00    $4,000.00   50.6%
19UUA56613A079444    2/27/2011   2003 Acura TL                   $10,900.00    $5,400.00   49.5%
1D4GP24R768673012   12/11/2011   2006 Dodge Grand Caravan         $8,900.00    $6,006.48   67.5%
1LNHM87A52Y681048    10/9/2011   2002 Lincoln LS                  $9,900.00    $5,656.78   57.1%
JTEGH20V830095745    3/23/2011   2003 Toyota Rav4                $10,400.00    $5,700.00   54.8%
1GNEC13RSYR151847   12/16/2011   2000 Chevrolet Tahoe             $7,900.00    $3,195.00   40.4%
1B3ESS6C04D502246    12/5/2011   2004 Dodge Neon                  $5,900.00    $2,700.00   45.8%
4JGAB54E32A361975    11/5/2011   2002 Mercedes-Benz ML           $11,900.00    $7,060.75   59.3%
WBXPA73455WC49424     9/6/2011   2005 BMW X3                     $16,400.00   $10,800.00   65.9%
1FAFP46V1WF177622     7/2/2011   1998 Ford Mustang                $9,900.00    $5,500.00   55.6%
JN1CA21D7WT500657     6/4/2011   1998 Nissan Maxima               $6,900.00    $3,680.00   53.3%
2GCEC19W821132683    3/18/2011   2002 Chevrolet Silverado 1500    $7,900.00    $5,500.00   69.6%
JT8BD68S4X0060023    4/11/2011   1999 Lexus GS                   $11,800.00    $5,730.00   48.6%
28KA43R16H416054    12/13/2011   2006 Dodge Charger              $11,900.00    $7,950.77   66.8%
WBAAm3343YFP79893    3/31/2011   2000 BMW 3 Series                $8,900.00    $5,149.39   57.9%
WBAXA73555B815676     4/4/2011   2005 BMW 5 Series               $16,400.00    $9,000.00   54.9%
1GCEC14X17Z174286     4/7/2011   2007 Chevrolet Silverado        $11,900.00    $7,000.00   58.8%
4JGAB72E41A265737    2/23/2011   2001 Mercedes-Benz ML           $12,900.00    $6,800.00   52.7%
WBAAM5332XFR04559     4/2/2011   1999 BMW 3 Series               $10,900.00    $4,922.25   45.2%
WDBRF64JXZE002046    2/12/2011   2002 Mercedes-Benz C Class      $10,900.00   $10,300.00   94.5%
                                                                32

 [*32]
 19UCA56832A041388            1/24/2011    2002 Acura TL                        $9,900.00       $6,362.48       64.3%
 JS1VT54A252100524             4/5/2011    2005 Suzuki SV1000                   $8,900.00       $3,500.00       39.3%
 2G1WE52E949161370            2/27/2011    2004 Chevrolet Impala                $7,900.00       $3,000.00       38.0%
 1GNEC13TZYJ128631            5/14/2011    2000 Chevrolet Tahoe                 $9,900.00       $6,469.66       65.4%
 1GKEK13R2YR153099            2/20/2011    2000 GMC Yukon Denali                $9,900.00       $7,825.00       79.0%
 1FMRC15W03LC49959            1/23/2011    2003 Ford Expedition                $10,900.00       $5,136.38       47.1%
 1FMRU15W92LA97856            2/26/2011    2002 Ford Expedition                 $8,900.00       $4,149.18       46.6%
 3GYEK63N72G212753            2/19/2011    2002 Cadillac Escalade              $16,900.00       $9,800.00       58.0%
 JHLRD1842XC012624             7/2/2011    1999 Honda CR-V                      $6,700.00       $3,000.00       44.8%
 1GNDT13W5W2189117            8/20/2011    1998 Chevrolet Blazer                $4,900.00       $1,500.00       30.6%
 WAUJC68E93A206945            9/11/2011    2003 Audi A4                        $10,900.00       $7,500.00       68.8%
 2GCEC19V911278807            9/23/2011    2001 Chevrolet Silverado 1500       $10,400.00       $5,870.64       56.4%
 2G1WB55K869169587             4/4/2011    2006 Chevrolet Impala               $10,900.00       $6,925.00       63.5%
 1GYEC63%74R107886 10          1/6/2011    2004 Cadillac Escalade              $17,900.00      $11,398.09       63.7%
 2HNYD18862H543966           11/12/2011    2002 Acura MDX                       $9,900.00       $4,900.00       49.5%
 1FMZU63E92ZC18759            8/18/2011    2002 Ford Explorer                  $10,900.00       $5,275.03       48.4%
 1GNEC13V04R193673            11/3/2011    2004 Chevrolet Tahoe                $13,900.00      $11,841.83       85.2%
 1G8ZK52762Z178710            9/29/2011    2002 Saturn S-Series                 $4,900.00       $2,315.00       47.2%
 WCBNG70J9VA069051           10/17/2011    2000 Mercedes Benz S Class          $11,900.00       $5,700.00       47.9%
 2GCEC19V7X1225015            11/6/2011    1999 Chevrolet Silverado 1500        $8,900.00       $4,500.00       50.6%
 JT88F28G8W5014288            8/20/2011    1998 Lexus ES                        $5,900.00       $3,800.00       64.4%

       10 Some VINs listed in RA Kaplan’s spreadsheets contain nonalphanumeric characters and/or more or fewer digits than 17. Those

VINs are reproduced here although the Court believes them to contain transcription errors.
                                                        33

[*33]
3GTEC14X97G166310     6/11/2011   2007 GMC Sierra (Classic)       $10,900.00    $6,580.00   60.4%
1GNEC13R0YR142375    11/27/2011   2000 Chevrolet Tahoe             $4,900.00    $3,608.01   73.6%
2G1FP23G512134068     4/16/2011   2001 Chevrolet Camero           $12,900.00    $7,300.00   56.6%
1GTEC19T8YZ138294     1/24/2011   2002 GMC Sierra 1500 Ext        $10,900.00    $5,850.00   53.7%
1N4BL11E63C299096     9/18/2011   2003 Nissan Altima              $10,900.00    $6,275.00   57.6%
1G1BL52P8TR180649     8/27/2011   1996 Chevrolet Impala            $9,900.00    $4,800.00   48.5%
1D4GP24R16B711835      6/8/2011   2006 Dodge Grand Caravan         $7,900.00    $5,425.00   68.7%
WBANA735X4B806051     1/27/2011   2004 BMW 5 Series               $19,900.00   $14,341.43   72.1%
1GNEC138R4YR179994     1/8/2011   2000 Chevrolet Tahoe            $12,900.00    $4,900.00   38.0%
3GNEC16TX3G117838     2/23/2011   2003 Chevrolet Suburban 1500    $11,900.00    $8,800.00   73.9%
1GKEC13R4VJ743022     5/13/2011   1997 GMC Yukon                   $7,499.00    $3,618.33   48.3%
3GYFK66N54G269052     2/14/2011   2004 Cadillac Escalade          $16,500.00   $10,300.00   62.4%
1GYEK63N02R189302      2/5/2011   2002 Cadillac Escalade          $18,900.00    $7,705.00   40.8%
WBABM5346VJP03324     12/8/2011   2000 BMW 3 Series               $10,900.00    $5,823.10   53.4%
1GMDC23E83D237496     7/23/2011   2003 Pontiac Montana             $7,900.00    $4,700.00   59.5%
JT8BH68X1Y0024159     8/25/2011   2000 Lexus GS                   $10,500.00    $5,775.00   55.0%
19UUA56672A021319     7/16/2011   2002 Acura TL                    $8,400.00    $5,800.00   69.0%
2GCEC19T821429281     5/15/2011   2002 Chevrolet Silverado 1500    $9,600.00    $5,066.74   52.8%
5FNRL18092B022673      2/6/2011   2002 Honda Odyssey               $9,900.00    $5,225.00   52.8%
1GKFK66U02J214129      2/5/2011   2002 GMC Yukon XL 1500          $13,900.00    $8,431.87   60.7%
1G1ND521X1M565436    12/15/2011   2001 Chevrolet Malibu            $5,900.00    $2,415.00   40.9%
1GKEK63R5YR207668    12/18/2011   2000 GMC Yukon Denali            $7,900.00    $3,695.00   46.8%
WBAAN37461ND46851    10/15/2011   2001 BMW 3 Series               $10,900.00    $4,378.17   40.2%
                                                       34

[*34]
1GYEK63N03R190841     8/4/2011   2003 Cadillac Escalade            $14,900.00    $10,650.00     71.5%
1GNEC13T6Y1164939    7/30/2011   2000 Chevrolet Tahoe               $9,900.00     $5,651.93     57.1%
BDBNG70J4YA107933     8/2/2011   2000 Mercedes Benz S Class        $12,900.00     $8,290.22     64.3%
1FMZU63K73ZA54709    7/22/2011   2003 Ford Explorer                 $9,900.00     $5,100.00     51.5%
5UXFA53542LP56586    2/20/2011   2002 BMW X5                       $15,225.00    $11,304.22     74.2%
WDBNG70J32A291057     1/8/2011   2002 Mercedes-Benz S Class        $11,400.00     $5,700.00     50.0%
19UUA56612A015533    1/10/2011   2002 Acura TL                     $10,300.00     $6,759.99     65.6%
1GKEK66U41J241528    2/22/2011   2001 GMC Yukon XL 1500            $11,900.00     $6,831.17     57.4%
SALNY22263A226964    7/20/2011   2003 Land Rover Freelander         $7,900.00     $3,815.92     48.3%
JN1CA21D7TT726385    12/5/2011   Nissan Maxima                      $4,900.00     $3,900.00     79.6%
1G6DM57N730119028    3/30/2011   2003 Cadillac CTS                  $9,900.00     $7,000.00     70.7%
1G6DM7NX30137409     3/18/2011   2003 Cadillac CTS                 $13,400.00     $8,688.33     64.8%
WDBNG70J92A252036    1/28/2011   2002 Mercedes-Benz S Class        $14,900.00     $8,300.00     55.7%
2HKRL18501H589947    3/12/2011   2001 Honda Odyssey                 $9,900.00     $5,100.00     51.5%
1GKEC13T02R188787    8/10/2011   2002 GMC Yukon                     $8,900.00     $5,525.00     62.1%
3VWTG69M11M109824   11/15/2011   2001 Volkswagen Jetta              $7,900.00     $3,565.00     45.1%
JT8BF12G3T0186014     7/2/2011   1996 Lexus ES                      $6,500.00     $3,300.00     50.8%
WDBGA76E1PA120187    8/12/2011   1993 Mercedes-Benz 600SEC         $11,500.00     $6,500.00     56.5%
WP1A829P54LA70364   12/20/2011   2004 Porsche Cayenne              $20,900.00    $15,950.00     76.3%
1GCEC14V02Z141416    7/24/2011   2002 Chevrolet Silverado 1500     $11,900.00     $6,208.43     52.2%
2HNYD18693H541371    3/13/2011   2003 Acura MDX                    $14,900.00    $12,000.00     80.5%
WBAGN63493DR09737    2/11/2011   2003 BMW 7 Series                 $20,400.00    $12,000.00     58.8%
                                                                                                56.4%
                                  Total (or Average)             $2,139,642.33 $1,224,592.71 (Average)
                                                     35

[*35]                              APPENDIX B – 2012
                     Date of                                                                COGS
        VIN            Sale                    Car               Sales Price   COGS         Margin
1GKDT135832197556   12/29/2012   2003 GMC Envoy                    $7,900.00    $5,500.00    69.6%
1G1NE52J016172210   12/22/2012   2001 Chevrolet Malibu             $4,900.00    $3,500.00    71.4%
1HGEM225031028044     6/2/2012   2003 Honda Civic                 $10,700.00    $6,000.00    56.1%
WBAFA535711M87951    8/26/2012   2001 BMW X5                      $11,900.00    $5,000.00    42.0%
1LNHM87A64Y665346    8/31/2012   2004 Lincoln LS                   $7,900.00    $5,262.31    66.6%
1GCEC1417YZ109957     3/4/2012   2000 Chevrolet Silverado 1500     $8,900.00    $3,600.00    40.4%
JNKAY41E73M002256     3/8/2012   2003 Infiniti                    $11,900.00    $6,175.00    51.9%
JT81Z31C4P0011743    3/28/2012   1993 Lexus SC                     $5,900.00    $1,500.00    25.4%
1GND5135532321711     3/4/2012   2003 Trail Blazer                 $7,300.00    $5,375.00    73.6%
WDBNG70391A176803    2/23/2012   2001 Mercedes-Benz C Class       $10,900.00    $6,908.30    63.4%
WBAAV53421J593586     1/7/2012   2001 BMW 3 Series                 $8,900.00    $4,887.57    54.9%
1N4AL11D95C266597    5/13/2012   2005 Nissan Altima               $10,900.00    $6,890.20    63.2%
1GKFK66U551255086    5/11/2012   2005 GMC Yukon XL 1500           $16,400.00   $11,500.00    70.1%
WBADT43471GF7530     6/30/2012   2001 BMW 5 Series                 $9,900.00    $5,040.00    50.9%
5TDZT38A215053956   12/24/2012   2001 Toyota Sequoia              $10,900.00    $5,600.00    51.4%
1FMDU65W94ZA52519   11/20/2012   2004 Ford Explorer               $11,900.00    $6,377.93    53.6%
4JGAB72E41A265737    8/29/2012   2001 Mercedes-Benz ML Class      $11,900.00    $6,266.11    52.7%
1GTEK9T0XZ533846     7/24/2012   1999 GMC Sierra 1500 Extend       $9,900.00    $4,840.00    48.9%
1GCCS19W3Y8149987     6/2/2012   2000 Chevrolet S10 Ext. Cab       $6,900.00    $2,400.00    34.8%
1GCCS19W02852176     12/2/2012   2002 Chevrolet S10 Ext. Cab       $9,400.00    $4,700.00    50.0%
JT88F22G6V0033300     4/1/2012   1997 Lexus ES                     $9,900.00    $5,840.00    59.0%
                                                      36

[*36]
1B7GG2A2515109577     5/27/2012   2001 Dodge Dakota Quad Cab       $5,900.00    $4,980.00    84.4%
WDBNG705YA029033      3/20/2012   2000 Mercedes-Benz S Class      $10,900.00    $4,911.28    45.1%
WBADT43421GX22705     3/20/2012   2001 BMW 5 Series               $10,900.00    $5,516.65    50.6%
4A3AA46G01E049505      7/5/2012   2001 Mitsubishi Galant           $5,900.00    $2,200.00    37.3%
1TJGF10U630161797    12/22/2012   2003 Lexus RX                   $11,900.00    $7,500.00    63.0%
WVWPD6381eP272622    12/17/2012   2003 Volkswagen Passat           $7,900.00    $2,400.00    30.4%
WDBPJ75J02A020282    11/27/2012   2002 Mercedes Benz CL Class      $7,500.00    $7,000.00    93.3%
2GCEC19V921108786    11/12/2012   2002 Chevrolet Silverado 1500    $7,900.00    $6,640.00    84.1%
SAJEA51D23XD53602      9/8/2012   2003 Jaguar X-Type               $7,900.00    $3,973.76    50.3%
1GCCS19W118196909     5/10/2012   2001 Chevrolet S10 Ext. Cab     $10,900.00    $5,600.00    51.4%
2GCED19W421375519      8/4/2012   2002 Chevrolet Silverado 1500    $8,900.00    $5,040.00    56.6%
WDBJF55F8%J006266      8/7/2012   1996 Mercedes Benz E Class       $3,000.00    $3,300.00   110.0%
WP1AB29P924LA76684     6/3/2012   2004 Porsche Cayenne            $18,900.00   $16,000.00    84.7%
1N4BL11D43C250115     5/26/2012   2003 Nissan Altima              $10,900.00    $5,430.56    49.8%
WDBRF64J13F308855     3/14/2012   2003 Mercedes Benz C Class      $11,900.00    $5,900.00    49.6%
1NXBR32EX32131423      3/8/2012   2003 Toyota Corolla              $8,900.00    $5,775.00    64.9%
3VWRC29M7XM058806     2/10/2012   1999 Volkswagen Jetta            $6,500.00    $3,300.00    50.8%
1TLKT324950214885     2/10/2012   2005 Scion                      $10,900.00    $6,875.00    63.1%
WBAEV53453KM27991     3/30/2012   2003 BMW 3 Series                $8,900.00      $771.42     8.7%
1GNC513WSY2121580     5/18/2012   2000 Chevrolet Blazer            $5,900.00    $1,520.00    25.8%
1GYEK1388VR159950     5/11/2012   2000 Cadillac Escalade           $8,900.00    $3,395.00    38.1%
1G2WK52142F134604      8/5/2012   2002 Pontiac Grand Prix          $8,900.00    $2,225.00    25.0%
WBAAM5332XFR08501     5/26/2012   1999 BMW 3 Series                $9,900.00    $4,272.30    43.2%
                                                     37

[*37]
WBADM6348XGU02578     9/7/2012   1999 BMW 5 Series                $6,900.00    $2,500.00   36.2%
JT8UF11E680198059   12/30/2012   1994 Lexus LS                    $9,900.00      $499.30    5.0%
1FMBU17L611829745     2/1/2012   2001 Ford Expedition             $8,900.00    $4,545.00   51.1%
1FAFP34322W260174   11/22/2012   2002 Ford Focus                  $6,900.00    $2,810.00   40.7%
2T1CE22PG32023068    9/11/2012   2003 Toyota Solara               $8,900.00    $4,025.00   45.2%
JT88H68X1Yoo24159    10/3/2012   2000 Lexus GS                    $8,900.00    $5,990.00   67.3%
WBADT63491CF05951     9/5/2012   2001 BMW 5 Series                $9,900.00    $3,995.00   40.4%
1GNEC13T71J108448    8/13/2012   2001 Chevrolet Tahoe             $8,900.00    $6,000.00   67.4%
2C4GM68465R367995    1/18/2012   2005 Chrystler Pacifica         $10,900.00    $5,179.04   47.5%
WDBJF55F6VJ030620    3/26/2012   1997 Mercedes Benz E Class       $7,900.00    $4,900.00   62.0%
2A8GM68X47R145042    2/16/2012   2007 Chrystler Pacifica         $12,900.00    $7,605.00   59.0%
WDB8F405A562092      4/20/2012   2004 Mercedez Benz C Class      $12,900.00    $8,240.00   63.9%
3VWSK69M85M015357    9/23/2012   2005 Volkswagen Jetta           $10,900.00    $5,140.00   47.2%
1GTEC14V522229605    8/16/2012   2002 GMC Sierra 1500 Reg. Cab   $10,900.00    $5,000.00   45.9%
WBAEV33442P055030    1/28/2012   2002 BMW 3 Series                $7,500.00    $4,900.00   65.3%
1GCEK19%E1E107728    3/13/2012   2001 Chevrolet Silverado 1500    $9,500.00    $4,000.00   42.1%
3VWBK21C31M469988    3/23/2012   2001 Volkswagen Beetle           $7,900.00    $4,400.00   55.7%
WBAMA735748059251    2/20/2012   2004 BMW 5 Series               $16,900.00   $10,995.00   65.1%
WDBRF61J33A536406    9/20/2012   2003 Mercedes Benz C Class      $10,900.00    $6,946.57   63.7%
WAUJC68E45A119800   11/20/2012   2005 Audi A4                     $9,900.00    $5,500.00   55.6%
2HKRL18982H523148    9/14/2012   2002 Honda Odyssey              $10,100.00    $4,840.00   47.9%
2G1WT58K779164147     2/4/2012   2007 Chevrolet Impala            $8,900.00    $3,610.43   40.6%
1GKES16S346151663    2/13/2012   2004 GMC Envoy XL               $10,000.00    $4,645.00   46.5%
                                                      38

[*38]
1FMZU63W532A53447      1/4/2012   2003 Ford Explorer              $10,900.00   $5,700.00    52.3%
WBAAM3341YCA89810     3/14/2012   2000 BMW 3 Series                $8,600.00   $5,300.00    61.6%
JTHBD182910003343     2/17/2012   2001 Lexus IS                    $9,900.00   $5,940.00    60.0%
JT88D68S9W0026609     5/16/2012   1998 Lexus GS 300                $9,900.00   $3,725.00    37.6%
WDBRF64J62E005008     1/24/2012   2002 Mercedez Benz C Class      $10,900.00   $5,509.11    50.5%
WDBNF7019YA033881    12/23/2012   2000 Mercedes-Benz S Class      $11,900.00   $6,140.00    51.6%
5FNRL18693B016619    10/30/2012   2003 Honda Odyssey              $10,900.00   $6,017.35    55.2%
1LNHM8653YY602589    10/26/2012   2000 Lincoln LS                  $6,900.00   $3,500.00    50.7%
1HGCM72644A002945     11/3/2012   2004 Honda Accord                $8,900.00   $4,810.90    54.1%
1GNEK13T51R158818     9/30/2012   2001 Chevrolet Tahoe             $8,500.00   $4,940.00    58.1%
WBADT43452G644699     8/13/2012   2002 BMW 5 Series                $9,900.00   $4,300.00    43.4%
2CGCEK19T3Y1287241     7/1/2012   2000 Chevrolet Silverado 1500    $7,400.00   $5,097.95    68.9%
5J6YH18573L010748     6/11/2012   2003 Honda Element              $11,000.00   $8,469.20    77.0%
1GCEC14XX27142557      2/4/2012   2002 Chevrolet Silverado 1500    $9,900.00   $4,800.00    48.5%
2G1WJ115K779402999   11/24/2012   2007 Chevrolet Monte Carlo       $3,900.00   $2,800.00    71.8%
1FAFP33P82W225238     8/12/2012   2002 Ford Focus                  $5,400.00   $5,900.00   109.3%
WDBNG70J52A299256     8/20/2012   2002 Mercedez Benz C Class      $11,400.00   $6,827.81    59.9%
1G6EL12Y8XU614791      5/7/2012   1999 Cadillac Eldorado           $7,400.00   $3,600.00    48.6%
4T1BF22K9XU086814     2/11/2012   1999 Toyota Camry                $7,900.00   $2,885.00    36.5%
JT8UF11E1N0109766     3/16/2012   1992 Lexus LS                    $4,900.00   $2,000.00    40.8%
2G1WX15K429290606     10/7/2012   2002 Chevrolet Monte Carlo       $6,900.00   $2,615.00    37.9%
1GCCS146268270580     3/30/2012   2006 Chevrolet Colorado Reg.     $3,000.00   $3,995.00   133.2%
1GNEC13T64R194583     1/23/2012   2004 Chevrolet Tahoe             $9,900.00   $6,340.00    64.0%
                                                    39

[*39]
5UXFA53573LV97077     9/6/2012   2003 BMW X5                  $12,900.00    $6,140.00   47.6%
1FMFU19525LA69115    12/2/2012   2005 Ford Expedition         $11,900.00    $4,600.00   38.7%
JN1DA31A52T307353    5/28/2012   2002 Nissan Maxima            $9,900.00    $5,400.00   54.5%
WDBNG7512YA040242    7/27/2012   2000 Mercedes-Benz S Class   $12,900.00    $5,745.28   44.5%
1N4AL11032C202504    7/29/2012   2002 Nissan Altima            $8,900.00    $6,000.00   67.4%
1FMYU02144KB06454     9/8/2012   2004 Ford Escape              $5,900.00    $4,200.00   71.2%
WBAAM3349YFP72673     6/9/2012   2000 BMW 3 Series             $9,900.00    $5,100.00   51.5%
1ZVFT84N775215746     4/7/2012   2007 Ford Mustang            $14,900.00   $10,650.91   71.5%
1GNEC13T04R111391     2/5/2012   2004 Chevrolet Tahoe         $12,900.00    $7,904.48   61.3%
1GYEK13R8YR159950    8/20/2012   2002 Cadillac Escalade        $9,400.00    $3,395.00   36.1%
YV1R5G1R012044405   11/23/2012   2001 Volvo S60                $7,800.00    $3,300.00   42.3%
JT2EL55D050019620    2/17/2012   1995 Toyota Tercel            $3,900.00    $1,850.00   47.4%
1LNHM87A73Y668898    6/17/2012   2003 Lincoln LS              $10,900.00    $6,912.90   63.4%
WBADT43413G031457   11/20/2012   2003 BMW 5 Series            $11,300.00    $6,340.00   56.1%
JT8CH32Y3T0050758   12/11/2012   1996 Lexus SC                 $5,900.00    $1,800.00   30.5%
JTEDW21AU70022671   12/16/2012   2007 Toyota Highlander       $12,900.00    $8,000.00   62.0%
1FMRU15L13LA38727    7/10/2012   2003 Ford Expedition         $11,750.00    $6,500.00   55.3%
WDBL165G4WF034448    6/18/2012   1998 Mecerdes Benz CLK        $6,900.00    $4,000.00   58.0%
1FMFU18L73LB23425    6/23/2012   2003 Ford Expedition         $10,900.00    $6,340.00   58.2%
JT88H68XeY0024577    3/31/2023   2000 Lexus GS                 $8,900.00    $6,625.00   74.4%
1FMYU01111KA70431    1/20/2012   2001 Ford Escape              $4,500.00    $4,000.00   88.9%
1G6EL12Y8XU614791     4/1/2012   1999 Cadillac Eldorado        $7,900.00    $3,600.00   45.6%
JT2BF28K0Y0251324    1/20/2012   2000 Toyota Camry             $7,900.00    $3,595.00   45.5%
                                                     40

[*40]
1GCEK19T61E220105   12/27/2012   2001 Chevrolet Silverado 1500    $8,900.00    $3,500.00    39.3%
1GKES165636145838    4/23/2012   2003 GMC Envoy                  $10,900.00    $6,524.00    59.9%
2HGES26782H521810    7/29/2012   2002 Honda Civic                 $9,400.00    $5,045.00    53.7%
2T1CG22P4YC345600    1/11/2012   2000 Toyota Solara               $7,400.00    $4,550.00    61.5%
JN8A208T93W109670     1/8/2012   2003 Nissan Murano              $11,800.00    $7,300.00    61.9%
1GCEK19T3YE336162   12/16/2012   2000 Chevrolet Silverado 1500    $9,700.00    $5,000.00    51.5%
3GKFK16T9YG118698     7/2/2012   2000 GMC Yukon XL 1500           $8,900.00    $3,625.00    40.7%
WBAEV3312KL77125    12/16/2012   2002 BMW 3 Series                $9,900.00    $4,739.45    47.9%
1GKFK66U913198787   12/17/2012   2001 GMC Yukon XL 1500          $11,900.00    $6,500.00    54.6%
2B3KA43RX7H606999   11/15/2012   2007 Dodge Charger              $15,900.00   $10,500.00    66.0%
JT8BD6850X0063744   10/14/2012   1999 Lexus GS                    $9,500.00    $4,440.00    46.7%
1FMRU17W23LC31802    6/27/2012   2003 Ford Exposition            $12,900.00    $6,540.00    50.7%
WBAAM3346YCA89897    4/21/2012   2000 BMW 3 Series               $10,500.00    $5,445.00    51.9%
WBAGJ8325WDM15370    8/31/2012   1998 BMW 7 Series                $6,900.00    $3,750.00    54.3%
WDBDA68FSXF174512    2/23/2012   1999 Mercedes Benz SL Class     $11,900.00    $7,603.23    63.9%
KNDUP132856713927    2/11/2012   2005 Kia Sedona                  $7,900.00    $5,800.00    73.4%
1GKFK66U93J164822    9/19/2012   2003 GMC Yukon XL 1500          $11,700.00    $5,700.00    48.7%
1LNHM86S93Y698575     4/1/2012   2003 Lincoln LS                  $9,900.00    $4,125.00    41.7%
2G2FV32G822163170    4/28/2012   2002 Pontiac Firebird           $10,900.00    $6,275.00    57.6%
1FMZU65W42ZC45793     4/8/2012   2002 Ford Explorer               $7,900.00    $3,400.00    43.0%
SALME114X4A175892     4/3/2012   2004 Land Rover Range Rover     $17,900.00   $13,265.00    74.1%
JT1GF10U81016619      7/4/2012   2001 Lexus RX                   $10,900.00    $5,980.28    54.9%
2GIWF52E419291567    1/27/2012   2001 Chevrolet Impala            $3,000.00    $3,065.00   102.2%
                                                  41

[*41]
3VWRK69M83M121173     1/1/2012 2003 Volkswagen Jetta            $7,900.00   $3,400.00   43.0%
                               1999 Chevrolet S10 Regular
1GCCS1441X8206708    3/12/2012 Cab                              $6,900.00   $2,915.00   42.2%
2B3LA43G47H636812    2/24/2012 2007 Dodge Charger              $12,900.00   $8,205.00   63.6%
1FMYU01111KA70431    6/12/2012 2001 Ford Escape                 $5,900.00   $4,000.00   67.8%
1GNEC3TS1R154099    12/23/2012 2001 Chevrolet Tahoe            $11,900.00   $6,000.00   50.4%
2G1WB58KD69161673    9/29/2012 2006 Chevrolet Imapal            $8,900.00   $3,700.00   41.6%
2HKRL18602H522999   12/17/2012 2002 Honda Odyssey              $10,900.00   $5,400.00   49.5%
1GTEC19VD5Z120496   11/20/2012 2005 GMC Sierra 1500 Ext. Cab   $12,400.00   $4,500.00   36.3%
19UYA42673A005785    8/23/2012 2003 Acura CL                    $7,900.00   $5,000.00   63.3%
19UUA56903A013042    8/27/2012 2003 Acura IL                    $9,900.00   $4,600.00   46.5%
WAULC68E52A047672    7/28/2012 Audi A4                          $9,050.00   $5,840.00   64.5%
WDBNG70J12A234596    6/30/2012 2002 Mercedes Benz S Class      $12,900.00   $9,000.00   69.8%
1D4GP24R17B244031    5/19/2012 2007 Dodge Grand Caravan         $6,900.00   $4,545.00   65.9%
1FMCU03172KD66885    1/15/2012 2002 Ford Escape                 $9,650.00   $4,711.81   48.8%
WBAFA53541LM72632    9/12/2012 2001 BMW X5                     $11,900.00   $6,350.00   53.4%
JTHBF30G625031425   10/31/2012 2002 Lexus ES                    $7,500.00   $7,137.69   95.2%
1GKFK66UDLH88004     8/18/2012 2001 GMC Yukon XL 1500           $8,900.00   $6,044.03   67.9%
1DrHD38K65F506843    5/24/2012 2005 Dodge Duragno              $10,900.00   $4,868.31   44.7%
1FAHP3439VW257533    4/15/2012 2000 Ford Focus                  $5,900.00   $4,000.00   67.8%
SAJEA01U63HM53146    3/18/2012 2003 Jaguar S-Type              $10,900.00   $7,179.97   65.9%
WDB1F65H1XA814293     2/7/2012 1999 Mercedes Benz E Class       $6,900.00   $4,000.00   58.0%
2T1CG22P1YC321366    5/17/2012 2000 Toyota                      $6,900.00   $3,150.00   45.7%
2C8GM68424R633431   11/13/2012 2004 Chrysler Pacifica           $9,400.00   $5,740.00   61.1%
                                                     42

[*42]
3VWBC21C4YM452169    9/25/2012   2000 Volkswagon Beetle           $6,900.00    $2,300.00   33.3%
SALNE22274A296497    5/29/2012   2004 Land Rover Freelander       $7,700.00    $3,725.00   48.4%
WBABM3348YJN85314    4/12/2012   2000 BMW 3 Series                $8,900.00    $5,000.00   56.2%
JTJHF100210195012     4/9/2012   2001 Lexus RX                   $10,400.00    $6,500.00   62.5%
WAUED2809XA208487    3/15/2012   1999 Audi A4                     $6,900.00    $3,600.00   52.2%
JTJHF100110230915    3/11/2012   2001 Lexus RX                   $12,400.00    $7,200.00   58.1%
JN8AZ08T24W221955     3/3/2012   2004 Nissan Murano               $9,400.00    $7,797.80   83.0%
1LNHM865S12Y705369   1/25/2012   2002 Lincoln LS                  $4,600.00    $3,357.00   73.0%
5LMFL2567LJ14259     1/17/2012   2007 Lincoln Navigator L        $25,150.00   $19,125.49   76.0%
1GYDE637X40138966    4/19/2012   2004 Cadillac SRX               $12,700.00    $6,152.70   48.4%
3VWTH69M13M038799    9/14/2012   2003 Volkswagen Jetta            $9,400.00    $3,695.00   39.3%
2B3KA43R06H390658    9/13/2012   2006 Dodge Charger              $11,900.00    $5,500.00   46.2%
1GCCS145018151314    9/30/2012   2001 Chevrolet S10 Reg. Cab      $7,500.00    $2,493.77   33.3%
1GCCS19W0Y8105302    11/4/2012   2000 Chevrolet S10 Ext. Cab      $6,400.00    $2,210.00   34.5%
1GCCS19W818156438    8/12/2012   2001 Chevrolet S10 Ext. Cab      $9,900.00    $4,840.00   48.9%
1GCEC14X232231511    3/29/2012   2003 Chevrolet Silverado 1500   $10,900.00    $6,475.00   59.4%
SFNRL180738086678    5/19/2012   2003 Honda Odyssey               $7,300.00    $5,540.00   75.9%
1D4HD48D84F216710     2/2/2012   2004 Dodge Durango              $12,900.00    $6,900.00   53.5%
2D4GP44L17R175057    2/19/2012   2007 Dodge Grand Caravan         $8,900.00    $4,500.00   50.6%
JT8BF22GXV0029797    1/29/2012   1997 Lexus ES                    $7,900.00    $4,295.00   54.4%
1G1ZH57B69F149455     4/3/2012   2009 Chevrolet Malibu           $13,500.00   $10,000.00   74.1%
4T3ZF13C2WU010017    5/13/2012   1998 Toyota Sienna               $8,900.00    $3,000.00   33.7%
1FMDU65W52ZA89029     7/7/2012   2002 Ford Explorer               $9,900.00    $3,100.94   31.3%
                                                    43

[*43]
WDBNG7S151A211944   11/29/2012   2001 Mercedes Benz S Class      $11,900.00   $4,240.00    35.6%
1FAFP53U91G121593   12/22/2012   2001 Ford Taurus                 $3,999.00   $2,000.00    50.0%
JTGHF10U0X0035004   11/12/2012   1999 Lexus RX                    $9,900.00   $5,000.00    50.5%
1N4AL11D65C129830    5/27/2012   2005 Nissan Altima               $9,500.00   $6,020.00    63.4%
SAL1V124XXA562312     2/4/2012   1999 Land Rover Discovery        $6,900.00   $2,430.03    35.2%
2CNDL73F156090514     5/6/2012   2005 Chevrolet Equinox          $10,295.00   $4,438.25    43.1%
JT8UF11ESM0094834   11/10/2012   1991 Lexus LS                    $5,900.00   $2,892.83    49.0%
JN1CA31D1Yt509833   10/16/2012   2000 Nissan Maxima               $4,000.00   $2,595.00    64.9%
1YVFP84DX45N84864    9/26/2012   2004 Mazda 6                    $10,900.00   $4,440.00    40.7%
1G1YY0781F5101589    7/31/2012   1985 Chevrolet Corvette          $2,900.00   $4,000.00   137.9%
1GNEC16T421334654     6/7/2012   2002 Chevrolet Suburban 1500     $8,900.00   $3,325.00    37.4%
WDBRF64J61F04792     7/25/2012   2001 Mercedes Benz C Class      $11,900.00   $6,375.00    53.6%
WBAG163452DP54799    10/5/2012   2002 BMW 7 Series               $15,900.00   $8,649.19    54.4%
5TDZT38A925079780   10/21/2012   2002 Toyota Sequoia             $10,900.00   $5,545.00    50.9%
1GCEC14T5XZ113066     6/5/2012   1999 Chevrolet Silverado 1500    $7,700.00   $4,550.98    59.1%
2GCEC19V921328610    5/23/2012   2002 Chevrolet Silverado 1500    $8,900.00   $4,900.00    55.1%
3GNDA13D375543081    3/16/2012   2007 Chevrolet HHR               $8,900.00   $4,200.00    47.2%
3VWRC29M1YM115793    2/15/2012   2000 Volkswagen Jetta            $6,900.00   $3,000.00    43.5%
WDBRF61JX1F069131    4/14/2012   2001 Mercedes Benz C Class       $9,900.00   $5,800.00    58.6%
2G1WH55K449255183    2/26/2012   2004 Chevrolet Impala            $9,900.00   $4,345.00    43.9%
YU1RS61R712059371    12/5/2012   2001 Volvo S60                   $7,900.00   $2,000.00    25.3%
WDBNG75J7YA066299    5/19/2012   2000 Mercedes-Benz S Class      $10,900.00   $3,300.00    30.3%
WDBLJ65GGXF098699    9/21/2012   1999 Mercedes Benz CLK Class     $7,900.00   $3,115.00    39.4%
                                                    44

[*44]
1FMFU18L73LB25160    7/23/2012   2003 Ford Explorer           $11,900.00   $5,840.00   49.1%
2G1WX15K349242890    6/12/2012   2004 Chevrolet Monte Carlo    $3,900.00   $2,800.00   71.8%
1GKFK66U41J174459     6/6/2017   2001 GMC Yukon XL 1500       $10,900.00   $5,490.00   50.4%
1N4BL11D02C707419     5/3/2012   2002 Nissan Altima            $9,700.00   $6,267.50   64.6%
WDBRF61J83A480625     3/3/2012   2003 Mercedes Benz C Class   $10,900.00   $5,975.00   54.8%
2HKRL1861YH613675   10/27/2012   2000 Honda Odyssey           $10,900.00   $8,500.00   78.0%
1GNEC13T81R111389     9/2/2012   2001 Chevrolet Tahoe          $8,900.00   $4,500.00   50.6%
JT8UZ30C150040723     5/4/2012   1995 Lexus SC                 $5,500.00   $2,095.00   38.1%
YV1R553D212058074    8/23/2012   2001 Volvo 560                $9,300.00   $4,165.70   44.8%
1GKEK13R8WJ710836    7/28/2012   1998 GMC Yukon                $6,900.00   $1,550.00   22.5%
JT8GK13T150100226   11/20/2012   1995 Lexus ES                 $7,900.00   $2,410.00   30.5%
3VWSD29M61M030839    6/14/2012   2001 Volkswagen Jetta         $6,500.00   $3,995.00   61.5%
1FAFP53U91G121593    8/16/2012   2001 Ford Taurus              $6,900.00   $2,544.71   36.9%
KNDJD733735051400     8/1/2012   2003 Kia Sorento              $9,900.00   $5,861.27   59.2%
WBAAM3346YCB24891     4/2/2012   2000 BMW 3 Series             $7,500.00   $5,000.00   66.7%
WBAAV334X1FU85345    6/29/2012   2001 BMW 3 Series             $5,900.00   $3,395.00   57.5%
1HGCG22431A035567     7/2/2012   2001 Honda Accord             $7,900.00   $4,540.00   57.5%
19UUA56652A036028     6/7/2012   2002 Acura TL                 $8,700.00   $3,615.00   41.6%
3VWSA69M35M014510     3/3/2012   2005 Volkswagen Jetta         $9,900.00   $4,700.00   47.5%
JN8DR09X71W568112    4/22/2012   2001 Nissan Pathfinder        $8,900.00   $4,300.00   48.3%
1GYEK13R3XR418195    4/14/2012   1999 Cadillac Escalade        $8,900.00   $4,065.00   45.7%
SAJPD1845XC871938    4/14/2012   1999 Jaguar XJ Series         $7,000.00   $6,146.22   87.8%
WVWMD23B6YP301860    4/15/2012   2000 Volkswagen Passat        $5,900.00   $3,500.00   59.3%
                                                        45

[*45]
JT2EL55D050019620     2/20/2012   1995 Toyota Tercel                 $3,400.00     $1,850.00     54.4%
2GCEC19T321239565     2/25/2012   2002 Chevrolet Silverado 1500      $8,900.00     $5,475.00     61.5%
JHMBB6247XC004043     2/17/2012   1999 Honda Prelude                 $8,000.00     $4,887.19     61.1%
WFMDA516X5BA51814      2/4/2012   2005 Ford Freestar                 $7,900.00     $2,854.18     36.1%
1GMES165846172768    11/26/2012   2004 Chevrolet Trailblazer        $11,900.00     $5,640.00     47.4%
WAUJC68E64A144955     9/13/2012   2004 Audi A4                      $12,900.00     $5,240.00     40.6%
1GTEC19TSYZ160995     7/23/2012   2000 GMC Sierra 1500 Ext           $9,400.00     $4,840.00     51.5%
JT88068S7Y0100953     3/21/2012   2000 Lexus GS                     $11,900.00     $5,700.00     47.9%
WBADT43432GZ97212      6/2/2012   2002 BMW 5 Series                 $10,900.00     $4,240.00     38.9%
JTHFN48Y020031361     6/18/2012   2002 Lexus CS                     $12,900.00     $8,805.57     68.3%
5UXFA53592LP48001     4/16/2012   2002 BMW X5                       $15,900.00    $11,051.40     69.5%
1FMFU18516LA28588     3/14/2012   2006 Ford Exposition              $17,650.00     $7,301.18     41.4%
2G1WF52E659145676     2/14/2012   2005 Chevrolet Impala              $8,400.00     $4,511.71     53.7%
1B3ES26CX2D556763     9/28/2012   2002 Dodge Neon                    $6,900.00     $1,695.00     24.6%
2GCECL19TX11385038    7/22/2012   2001 Chevrolet Silverado 1500      $8,900.00     $3,595.00     40.4%
1GCEK19TS1E159832      8/1/2012   2001 Chevrolet Silverado 1500     $10,000.00     $4,882.00     48.8%
                                                                                                 54.2%
                                   Total (or Average)             $2,298,644.00 $1,238,416.00 (Average)