- 30 -
Additionally, the Commissioner must show either a likely
source for the unreported income or negate nontaxable sources.
Petzoldt v. Commissioner, supra at 695-697. If all nontaxable
sources are negated, respondent need not show a likely source.
United States v. Massei, 355 U.S. 595 (1958). “One or the other
will do.” Petzoldt v. Commissioner, supra at 696. The
Commissioner must also follow up leads to sources of nontaxable
income furnished by the taxpayer where they are reasonably
susceptible of being checked but need not negate every possible
nontaxable source where no leads are forthcoming. Holland v.
United States, 348 U.S. 121, 135-136, 138 (1954); United States
v. Penosi, 452 F.2d 217, 220 (5th Cir. 1971).
Because respondent’s determinations were based upon
transactions occurring with respect to Pieces of Eight’s bank
account, we need only consider circumstances relating to that
account in order to decide whether respondent has carried the
burden of proving an underpayment for each of 1988 and 1989.
Respondent has shown that petitioner was coowner of Pieces of
Eight. Respondent, however, has introduced evidence only of
expenditures made by checks drawn on Pieces of Eight’s bank
account. Respondent has not attempted to show the opening
balance of that account for each of 1988 and 1989,12 which would
12
Furthermore, respondent’s analysis of Pieces of Eight’s
account for 1987, although sufficient to demonstrate the
existence of an underpayment of tax for that year, does not
(continued...)
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