Ernesto H. Monroy - Page 14
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income tax liability can be assessed, respondent may reconstruct
the taxpayer's income by using any method that, in the opinion of
respondent, clearly reflects income. Sec. 446(b); Moore v.
Commissioner, 722 F.2d 193 (5th Cir. 1984), affg. T.C. Memo.
1983-20. The source and application of funds method of
determining a taxpayer's gross income is well accepted. United
States v. Johnson, 319 U.S. 503, 517 (1943); Meier v.
Commissioner, 91 T.C. 273, 295-296 (1988). In this case, the
evidence of unreported income originated from respondent's source
and application analysis.
The parties stipulated to a source and application of funds
analysis that "correctly reflects petitioner's understatement of
gross income for the taxable year 1990, except that petitioner
contends that loans in the amount of $867,738.00 from a Mexican
corporation should be included as a source of funds, and that the
source of the $248,229.00 Alamo Title item was a loan from
Mexico". The parties also stipulated to a source and application
of funds analysis that "correctly reflects petitioner's gross
income for the taxable year 1991," except that petitioner
contends that loans made to Interservice Corporation should not
be included as an application of funds. For 1990, the stipulated
analysis includes an "understatement before disputed item" in the
amount of $941,671 and an "understatement after disputed items"
as ($174,296). For 1991, the "understatement after disputed
item" is shown as $25,454. Petitioner has thus stipulated that
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