- 20 -
McGirl argues that the understated income should be calculated as
follows:
Total McAllister Reported Understated
Year deposits loans deposits Income
1989 $126,464 $32,000 $70,154 $24,310
1990 146,055 30,500 54,681 60,874
1991 153,081 7,000 65,582 80,499
c. Reconstruction of Income
Every individual liable for tax is required to maintain
books and records sufficient to establish the amount of his or
her gross income. Sec. 6001; DiLeo v. Commissioner, 96 T.C. 858,
867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). Where a taxpayer
fails to maintain or produce adequate books and records, the
Commissioner is authorized to compute the taxpayer's taxable
income by any method that clearly reflects income. Sec. 446(b);
Holland v. United States, 348 U.S. 121 (1954); Webb v.
Commissioner, 394 F.2d 366, 371-372 (5th Cir. 1968), affg. T.C.
Memo. 1966-81. The reconstruction of income need only be
reasonable in light of all surrounding facts and circumstances.
Giddio v. Commissioner, 54 T.C. 1530, 1533 (1970). The
Commissioner is given latitude in determining which method of
reconstruction to apply when a taxpayer fails to maintain
9(...continued)
buy the equipment. The purchased equipment would be his
inventory. A taxpayer may not deduct inventory purchases.
Molsen v. Commissioner, 85 T.C. 485, 502 (1985). No documentary
evidence or testimony was offered by petitioners to establish the
cost of the ending inventory for each year in question.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011