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petitioners maintained at their residence.
As part of the reconstruction of income using the source
and application of funds method, funds that were accumulated
before the first taxable year under examination must be excluded.
During the examination, petitioner told respondent’s agent that
petitioners kept approximately $3,000 in cash at their residence.
Relying on petitioner’s representation, respondent used $3,000 in
the reconstruction of petitioners’ income.
Petitioners now contend that $3,000 does not represent the
correct amount of cash on hand and that petitioners actually had
as much as $30,000 in cash at their residence. The only evidence
petitioners offered on this point was petitioner’s oral
testimony. On direct examination petitioner was asked: “Now
today, with your knowledge of the facts, is that [$3,000] number
accurate, or is it higher or lower?” Petitioner responded:
I just prefer to leave it the same. I don’t
know. I couldn’t tell you the truth about
that. I’d just rather just leave it the
same, but I probably had--I had to have more
money than what I told him. That’s the only
thing I can say about it, but that’s been a
long time ago. Let’s just leave it $3,000,
and just let it ride like that. That’s what
I would say. [Emphasis added.]
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Last modified: May 25, 2011