- 29 -
beginning resources or a diminution of resources over time could
have made to expenditures.'" Petzoldt v. Commissioner, 92 T.C.
at 694-695 (quoting Taglianetti v. United States, 398 F.2d at
565).
Formal net worth statements are not required as long as
sources of available funds are identified and
quantified. The relevant issue in a cash expenditures
case is whether any expenditures in excess of reported
income can be attributed to assets available at the
beginning of the relevant period or to nontaxable
receipts, such as loans, gifts, or inheritances. [Id.
at 695; citations omitted.11]
Establishment of a taxpayer’s beginning resources is essential
and is recognized to be the most difficult component of the
Commissioner’s proof where the expenditures method is used.
United States v. Citron, 783 F.2d at 316. Where underpayments of
tax are to be shown over successive years, the Commissioner may
establish the opening available funds for the first year and show
the net amount of taxable and nontaxable receipts less
disbursements for that year in order to establish the opening
available funds for the successive year, and so on. United
States v. Caswell, 825 F.2d 1228, 1232 (8th Cir. 1987); United
States v. Marshall, 557 F.2d 527, 530 (5th Cir. 1977).
11
We held in Petzoldt v. Commissioner, 92 T.C. 661, 694-696
(1989), that the Commissioner’s failure to determine a taxpayer’s
opening and closing net worth did not prevent the Commissioner
from showing an underpayment of tax on the basis of the cash
expenditures method where the Commissioner introduced sufficient
evidence for us to conclude that the taxpayer did not have
sufficient resources at the beginning of the relevant period to
provide a nontaxable source for the expenditures in question.
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