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1979-3; Webb v. Commissioner, 394 F.2d 366, 372 (5th Cir. 1968),
affg. T.C. Memo. 1966-81. Taxpayers are required to maintain
records--transactions should be documented, contracts provided,
and expenses substantiated. Sec. 6001; Norgaard v. Commissioner,
939 F.2d 874, 878 (9th Cir. 1991), affg. in part and revg. in
part T.C. Memo. 1989-390.
The Commissioner is entitled to use a reconstruction method
where a taxpayer’s books and records are either inadequate or
nonexistent. Holland v. United States, supra; United States v.
Johnson, 319 U.S. 503 (1943); Campbell v. Guetersloh, 287 F.2d
878, 880 (5th Cir. 1961); Adamson v. Commissioner, supra; Keogh
v. Commissioner, 713 F.2d 496 (9th Cir. 1983), affg. Davies v.
Commissioner, T.C. Memo. 1981-438; United States v. Stonehill,
702 F.2d 1288 (9th Cir. 1983). Petitioners do not dispute that
respondent is entitled to use a reconstruction method.
Petitioners argue that the method of reconstruction used by
respondent was flawed and/or arbitrary.4
Petitioners, who are tax professionals, failed to keep any
record of cash receipts, although they did maintain records of
their cash expenditures. Petitioners intentionally discarded the
only records from which their income could have been verified.
Although petitioners’ tax accounting business activity has been
4 Respondent's reconstruction of petitioners’ income
included any income earned through the M&M partnership. The
corporate income of Gold was the subject of another case. That
case was dismissed due to Gold’s loss of its corporate status
and, hence, capacity to file a petition in this Court for relief.
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