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method, income is computed by determining a taxpayer's net worth
(excess of the cost of assets over liabilities) at the beginning
and end of a year. The difference between the two amounts is the
increase in net worth. This difference is increased by adding
nondeductible expenditures, including living expenses, and by
subtracting gifts, inheritances, loans, and the like. Holland v.
United States, 348 U.S. 121, 125 (1954). An increase in a
taxpayer's net worth, plus his or her nondeductible expenditures,
less nontaxable receipts, may be considered taxable income. Id.
In a net worth case, respondent must: (a) Establish the
taxpayer's opening net worth with reasonable certainty, and (b)
either show a likely income source or negate possible nontaxable
sources. Holland v. United States, supra at 132-138; Brooks v.
Commissioner, 82 T.C. 413, 431-432 (1984), affd. without
published opinion 772 F.2d 910 (9th Cir. 1985). Courts must
closely scrutinize use of the net worth method. Holland v.
United States, supra at 125. Its use requires the exercise of
great care and restraint to prevent a taxpayer from being
ensnared in a system which is difficult for the taxpayer to
refute. Id.
2. Whether Respondent's Determinations of the Amount of
Cash Petitioners Had on December 31, 1982, 1983, 1984,
1985, 1986, and 1987 Are Arbitrary
Respondent determined that petitioners had $140,000 in cash
on December 31, 1982, and $40,000 on December 31, 1983, 1984,
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