- 9 -
Petitioner admitted at trial that she refused to provide
respondent with any of K & A's bank statements for each of the
taxable years in issue. Petitioner also refused to provide
respondent with any billing statements issued by K & A to its
customers during the taxable year 1994. This documentation could
have permitted respondent to ascertain the correctness of the
reported income. Given the absence of any documentation in the
record, we find that respondent was reasonable in reconstructing
petitioner's income under the source and application of funds
method.
Despite our conclusion that respondent was reasonable in the
determination to reconstruct petitioner's income, the record
indicates that petitioner's living expenses were less than the
average living expenses provided in the BLS tables. The average
living expenses provided in the BLS tables includes costs for
shelter in the amount of $4,089.5 During the taxable year 1994,
however, petitioner did not incur any rent or mortgage expense.
Accordingly, we reduce petitioner's living expenses, as reflected
in respondent's reconstruction, by the amount of $4,089.
Consequently, we conclude that petitioner failed to report income
5 Respondent did not include any funds expended for
dormitory lodging. Since the record reflects that such lodging
was paid out of loans or scholarship funds, such payments would
be properly excluded from a source and application of funds
analysis.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011