- 12 -
States, 348 U.S. 121, 132 (1954). The Commissioner’s use of the
net worth method may be valid even though the Commissioner did
not properly recognize the taxpayer’s opening net worth, so long
as the determination was not arbitrary. Hoffman v. Commissioner,
298 F.2d 784, 786 (3d Cir. 1962); Baumgardner v. Commissioner,
251 F.2d 311 (9th Cir. 1957); Bodoglau v. Commissioner, 230 F.2d
336 (7th Cir. 1956). Respondent was not arbitrary in applying
the net worth plus expenditures method here.
D. Whether Petitioners are Liable for Fraud Without
Consideration of the Deemed Facts
In our prior opinion, we considered the deemed facts and the
entire record in holding that respondent clearly and convincingly
proved that petitioners are liable for the addition to tax for
fraud under section 6653(b) for 1975, 1976, and 1977. Estate of
Spear v. Commissioner, T.C. Memo. 1993-213 (slip. op. at 55-56).
The mandate of the Court of Appeals instructs us not to treat
respondent as having made a prima facie showing with respect to
the deemed facts as a sanction for petitioner's failure to
testify at trial. This changes our analysis significantly. We
no longer find as facts the allegations in subparagraphs k, l, o,
p, r, s, t, u, v, w, y, aa, ab, ac, ad, and ae of paragraph 7 of
respondent's amended answer because they are not adequately
supported by the record.1 Assertions in the
1 Paragraphs k, l, o, p, r, s, t, u, v, w, y, aa, ab, ac,
(continued...)
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