- 36 -
them properly. In October 1989, petitioner brought sorted but
incomplete records for 1985 to Burns' office. In or about
January 1990, a barn fire apparently destroyed the records that
had been inadvertently shipped away 2 years earlier.
The instant case's record does not indicate the nature or
extent of petitioner's records destroyed in the January 1990
fire. The instant case's record does not indicate the nature or
extent of petitioner's 1982 records included in the three boxes
that petitioner brought to--and took back from--Burns' office in
June 1989, except that the boxes appeared to include records from
1981 through 1987.
In any event, petitioner did not provide to respondent the
records for 1982 sufficient for respondent to determine
petitioner's 1982 tax liability. Consequently, respondent
determined petitioner's taxable income for 1982 by using the
source and application of funds method of reconstructing income.
In general, the source and application of funds method of
reconstruction assumes, absent some explanation by-the taxpayer,
that the amount by which a taxpayer's expenditures during a tax
year exceed that taxpayer's reported income has taxable origins.
As explanation, the taxpayer may show that the difference between
the total application of funds and the total reported sources of
funds is attributable to such nontaxable items as loans, gifts,
inheritances, or assets on hand at the beginning of the taxable
period. The method has been equated with the cash-expenditures
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 NextLast modified: May 25, 2011