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Respondent used the net worth method to calculate
petitioner's income for the years in issue. Indirect methods of
computing a taxpayer's income, such as the net worth method, are
appropriate where the taxpayer fails to maintain records
sufficient to enable the Commissioner to determine the taxpayer's
correct tax liability. Holland v. United States, 348 U.S. 121
(1954). The use of the net worth method was appropriate here, as
petitioner did not keep adequate financial records, and
"sanitized" her residence following Emmens' arrest.
Petitioner has not challenged, at trial or on brief, the
accuracy of respondent's determinations in the notice of
deficiency. She claims only that she is not liable for the
deficiencies and additions to tax for the years in issue because
she is entitled to innocent spouse status and did not participate
in or have any knowledge of her then-husband's illegal
activities.
Issue 1. Innocent Spouse Status
Respondent determined that petitioner and Emmens had
unreported income of $41,908 in 1982, $58,745 in 1983, and
$262,147 in 1984. The majority of this income came from
narcotics trafficking. Petitioner asserts that she is not liable
for the resulting deficiencies in, and additions to, Federal
income tax for the years in issue because she qualifies as an
innocent spouse pursuant to section 6013(e).
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