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Under the net worth method, income is computed by
determining a taxpayer's net worth at the beginning and end of a
period. The difference between the amounts is the increase in
net worth. An increase in a taxpayer's net worth, plus his
nondeductible expenditures, less nontaxable receipts, may be
considered taxable income. Holland v. United States, supra at
125.
Where the Commissioner has determined a deficiency by using
the net worth method, we may adjust a determination of opening
net worth shown by the trial record to be unrealistic. Hoffman
v. Commissioner, 298 F.2d 784, 786 (3d Cir. 1962), affg. in part
T.C. Memo. 1960-160; Baumgardner v. Commissioner, 251 F.2d 311
(9th Cir. 1957), affg. T.C. Memo. 1956-112; Potson v.
Commissioner, 22 T.C. 912, 928-929 (1954), affd. sub nom.
Bodoglau v. Commissioner, 230 F.2d 336 (7th Cir. 1956). Any such
adjustments do not invalidate the presumption of correctness
attaching to other aspects of the Commissioner's deficiency
determination if the determination was not arbitrary. Hoffman v.
Commissioner, supra at 788.
Respondent calculated petitioners' net worth for the years
in dispute, and we have attached the summary of respondent's
calculations as an appendix. The parties agree on all but four
categories of respondent's net worth calculations. We address
below only those categories in dispute.
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