- 12 -
Although we find that petitioner underreported his income
during the years in issue, it is not possible to determine the
exact amount based on the record before us. Where, as here, a
taxpayer fails to keep books and records sufficient to establish
the amount of his tax liabilities, or if the records maintained
do not clearly reflect income, then the Commissioner is
authorized to reconstruct income by any method which, in the
Commissioner's opinion, clearly reflects the taxpayer's income.
Sec. 446(b); Harbin v. Commissioner, supra at 377; sec. 1.446-
1(b)(1), Income Tax Regs. The Commissioner may use any
reasonable method to compute the income, and no particular method
is required. Campbell v. Guetersloh, 287 F.2d 878, 880 (5th Cir.
1961). The Commissioner's method need not be exact but must be
reasonable. Holland v. United States, 348 U.S. 121 (1954);
Rowell v. Commissioner, 884 F.2d 1085 (8th Cir. 1989), affg. T.C.
Memo. 1988-410. Courts permit the Commissioner broad discretion
in this area, requiring only that the estimate be rational "'in
logic and in light of normal business experience.'" Rowell v.
Commissioner, supra at 1087 (quoting 2 Mertens, Law of Federal
Income Taxation, sec. 12.108, at 443 (1989 rev.)). As the Court
of Appeals for the Ninth Circuit explained in Bradford v.
Commissioner, 796 F.2d 303, 306 (9th Cir. 1986) (quoting Webb v.
Commissioner, 394 F.2d 366, 373 (5th Cir. 1968), affg. T.C. Memo.
1966-87), affg. T.C. Memo. 1984-601,
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011