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During the course of his investigation, Agent Luna
discovered that petitioner had not filed Federal income tax
returns for 1988 through 1992. Agent Luna contacted petitioner
and requested that he produce financial records for those years.
Petitioner stated that he would have to speak with his accountant
and get back to Agent Luna. Petitioner, however, failed to
contact Agent Luna. Agent Luna did not make another attempt to
contact petitioner, and he failed to independently obtain
petitioner's bank records and other financial data.
Agent Luna reconstructed petitioner's income for the years
in issue (in addition to the income for 1988 and 1989 from
misappropriated funds) using the Consumer Price Index (CPI)
Rollover Method as follows:
1988 1989 1990 1991 1992
Base year income-1987$27,842 $27,842 $27,842 $27,842 $27,842
x CPI increase 1.02834 1.05846 1.10806 1.15855 1.18601
Gross income 28,631 29,470 30,851 32,256 33,021
On June 28, 1994, respondent issued two notices of deficiency to
petitioner. Respondent determined that petitioner was liable for
deficiencies of $33,616, $44,162, $8,376, $8,766, and $8,815 for
1988, 1989, 1990, 1991, and 1992, respectively. The deficiencies
included self-employment tax of $5,859, $5,978, $4,359, $4,558,
and $4,666 for 1988, 1989, 1990, 1991, and 1992, respectively.
OPINION
I. Unreported Income
Generally, the Commissioner's notice of deficiency is
presumed to be correct, and the taxpayer bears the burden of
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