- 15 - shareholder loans made during the year and income reported by JKY, less distributions made during the year. Investment as of 12/31/90 $265,043.27 Increased by: 1991 Income 165,003.00 Loans to JKY 89,530.00 Decreased by: 1991 Distributions (134,105.00) Investment as of 12/31/91 $385,471.27 Income Pass-Through--Form 1120S Adjustment Respondent based the proposed adjustments to JKY's 1990 and 1991 income on the bank deposit method. Respondent conceded the Form 1120S adjustment for taxable year 1990 in the amount of $38,321 based upon information supplied by petitioners during the preparation of this case for trial. OPINION Unreported Income The first issue for resolution is whether petitioners underreported their taxable income for each of the years in issue. In this case, the evidence of unreported income consists of respondent's net worth and bank deposit analyses. The validity of those analyses must be examined by applying the standards set forth in Holland v. United States, 348 U.S. 121 (1954). Under those standards, respondent must establish, with reasonable certainty, an opening net worth; and she must establish that either a likely source of unreported incomePage: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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