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party records from banks and clients in order to reconstruct
income.
Under these circumstances, Pease was able to specifically
determine the identity of some clients and a range of the fees
charged. Where the amount of a client’s fee was not available,
Pease used the minimum fee. In instances where it was possible
to discern that specific income had been reported on Gold’s
return (the corporate return), Pease eliminated that amount from
his reconstruction of the partnership return. Where the
corporate income, if any, could not be discerned or verified,
Pease, in order to protect the Government’s interest, attributed
the income to the M&M partnership. In those instances, there may
have been duplication between the income reported for Gold and
the income determined for petitioners through M&M. With respect
to one of those instances, respondent conceded on brief that the
amount of partnership income determined for 1989 should be
reduced by $4,938 for the deposits in Gold’s Merchants Bank
account during the last 5 months of 1989.
Courts have approved methods of reconstruction which project
or extrapolate from a limited amount of information. See, e.g.,
Gerardo v. Commissioner, 552 F.2d 549 (3d Cir. 1977), affg. in
part and revg. in part T.C. Memo. 1975-341; Adamson v.
Commissioner, supra. In Adamson v. Commissioner, supra at 548,
the court stated as follows:
Where the government has introduced evidence
linking the taxpayer to the illegal activity, the
taxpayer should not be allowed to avoid paying taxes
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