- NEXTRECORD -
Petitioners executed their income tax return for 1990 on
June 6, 1991. The return was received by respondent's Service
Center in Memphis, Tennessee, on June 10, 1991.
In the notice of deficiency, respondent determined that
petitioners failed to report accurately their income on their
income tax returns for 1989 and 1990. Accordingly, respondent
used an indirect method in order to reconstruct petitioners'
income for those years. Specifically, respondent used the source
and application of funds method and determined that petitioners
understated their income (or overstated their expenses) on their
1989 and 1990 income tax returns by $11,149 and $15,236,
respectively. Respondent determined these amounts as follows:
Taxable Year 1989
Funds Available
Wages - per return $20,907
Interest income - per return 749
Unemployment compensation - per return 145
Miscellaneous income - per return 1,800
Interest income - credit union 67
Loan 15,000
State tax refund 95
Federal tax refund 791
Credit union acct #11957 (balance on 1/1/89) 194
Credit union share acct #11246 (balance on 1/1/89) 2,884
Credit union acct #11246 (balance on 1/1/89) 8,462
Sale of truck - oral testimony 250
Sale of 4-wheeler 3,000
Sale of land to brother 5,000
Total funds available 59,344
Expenditures
Federal tax - per W-2 $1,226
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