Theron R. Livingston, Sr. - Page 8




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          deficiency for 1989, Baker reduced from $16,511 to $9,845 the                 
          amount of personal expenditures contained in the 1989 criminal                
          net worth computation3 and disallowed the $6,000 personal                     
          exemption that had been allowed in the criminal net worth                     
          computation.  The net result of these two changes was a decrease              
          in the amount of petitioner husband’s unreported income.  In                  
          drafting the notice of deficiency for 1990, Baker increased by                
          $12,421 the offset allowed for income reported on the return, but             
          omitted the $27,412 of “deductions”–-comprising $12,356 for                   
          petitioner wife’s wages, $6,856 for petitioners’ settlement of                
          their injury claims from the automobile accident, and $8,200 for              
          personal exemptions–-that had been allowed in the criminal net                
          worth computation, resulting in an increase in the amount of                  
          petitioner husband’s unreported income.4                                      


               3 The record does not reveal the basis upon which Baker                  
          determined this lesser amount of personal expenditures.                       
               4 The net worth analyses included in the 1989 and 1990                   
          statutory notices of deficiency were as follows:                              
          Particulars                                   12/31/89                        
          Understatement of income       $14,690                                        
          Total assets                                  $7,445                          
          Less: Total liabilities                       (2,600)                         
          Net worth                                     4,845                           
          Less: Prior years net worth                   (  -0-)                         
          Increases in net worth                        4,845                           
          Plus: Expenditures                             9,845                          
          Understatement of income                      14,690                          
          (Increase in net worth              ======                                    
          plus expenditures)                                                            
                                                               (continued...)           


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