Bill McDonald - Page 14

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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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