- NEXTRECORD -
taxpayer's income in accordance with a method that clearly
reflects income. Petzholdt v. Commissioner, 92 T.C. 661, 687
(1989). This possibility includes the use of indirect methods.
Holland v. United States, 348 U.S. 121 (1954). Although the
Commissioner's reconstruction need not be exact, it must be
"reasonable in light of all surrounding facts and circumstances."
Schroeder v. Commissioner, 40 T.C. 30, 33 (1963).
Here it should be recalled that respondent reconstructed
petitioners' income for 1989 and 1990 using an indirect method,
namely, the source and application of funds method. This method
of reconstructing income has long been accepted by this Court.
E.g., Vassallo v. Commissioner, 23 T.C. 656 (1955). It is not a
system of accounting; rather, it is a technique that may be used
to determine whether a taxpayer's books and records accurately
reflect the taxpayer's true income. Id. at 661-662; Estate of
Bartlett v. Commissioner, 22 T.C. 1228, 1230 (1954).
Accordingly, the Commissioner need not prove the inadequacy of a
taxpayer's books and records before using an indirect method of
reconstructing the taxpayer's income.3 Id. Any other rule would
3 We should not be understood to imply that we think that
petitioners' books and records were adequate. Indeed, the
evidence in this case suggests the contrary. For example, Mrs.
Chandler did not retain petitioners' bank statements and the
carbon copies of their checks but rather discarded them after the
checks had cleared their accounts. In addition, petitioner
conducted much of his business in cash. Moreover, it would
appear that no records were maintained regarding sales of
marijuana.
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011