- NEXTRECORD - unjustly reward the taxpayer who cleverly conceals income in the guise of a "perfect" set of books and records. In view of the foregoing, we hold that petitioners bear the burden of going forward with the evidence, as well as the ultimate burden of persuasion, with respect to respondent's deficiency determinations for the years in issue. Understatement of Income for 1989 and 1990 As noted above, respondent reconstructed petitioners' income for 1989 and 1990 using the source and application of funds method. This method of reconstructing income is based on the assumption that the amount by which a taxpayer's application of funds during a taxable year exceeds the taxpayer's known sources of funds for such year represents taxable income. A taxpayer has the right, of course, to identify particular areas or specific instances where the Commissioner's analysis fails to reflect the taxpayer's actual income. E.g., Meneguzzo v. Commissioner, 43 T.C. 824 (1965). Thus, for example, the Commissioner's analysis should be adjusted whenever the taxpayer demonstrates: (1) The analysis does not reflect, as a nontaxable source of income, funds accumulated at the beginning of a year and expended during the year, or (2) the analysis includes, as an application of funds, amounts that do not reflect expenditures made by the taxpayer during the year. Petitioners do not dispute the mechanics of respondent's source and application of funds analysis other than in threePage: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
Last modified: May 25, 2011