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thus depleted and moved the ammunition box to a new location
unknown to petitioner.
For reasons not disclosed in the record, the criminal
investigation was discontinued later that year and the case
referred to the Examination Division of the IRS. The audit of
petitioner’s 1989 and 1990 returns was conducted by Revenue Agent
Elizabeth Duffy (Duffy). Petitioner did not show Duffy any
records. In the absence of records, Duffy reconstructed
petitioner’s income using the source and application of funds
method. Under this method, she determined the total amount of
petitioner’s expenditures plus bank deposits in 1989 and 1990 and
the total amount of funds available to him from identified
sources in each year. In computing petitioner’s available
resources, Duffy included the $16,383 and $21,698 of receipts
traceable to farm sales but not reported on petitioner’s returns.
To the extent that petitioner’s expenditures plus deposits
exceeded funds available from identified sources, she presumed
that petitioner had additional unreported income from farming.
Petitioner’s uncorroborated account of his withdrawals of his
father’s inheritance from the ammunition box did not persuade her
otherwise. The adjustments set forth in the notice of deficiency
followed Duffy’s computations.
Before trial respondent revised the revenue agent’s
computations on the basis of additional information obtained from
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