Estate of Leon Spear, Deceased, Jeannette Spear, Harvey Spear, and Robin Spear, Administrators, and Jeannette Spear - Page 14

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          States, 348 U.S. 121 (1954), and their progeny, as establishing             
          the legal standard for the net worth method, and both parties               
          make the same legal analysis of fraud and the badges of fraud               
          under section 6653(b) and the decided cases.  The parties dispute           
          how those standards apply to the facts in this case.                        
               2.   Whether Respondent Had a Basis in Law for Determining             
                    That the Decedent and Mrs. Spear Had No Cash on Hand on           
                    January 1, 1975                                                   
               Petitioners contend that respondent had no basis in law for            
          determining that the decedent and Mrs. Spear had no cash on hand            
          on January 1, 1975, because respondent improperly used the net              
          worth method.  We disagree.                                                 
               Respondent's basis in law is clear.  The Commissioner may              
          use the net worth method to compute a taxpayer's income if the              
          taxpayer has inadequate records.  Paschal v. Commissioner, 76               
          AFTR 2d 95-7975, at 95-7977, 96-1 USTC par. 50,013, at 83,047 (3d           
          Cir. 1995), affg. without published opinion T.C. Memo. 1994-380;            
          sec. 1.446-1(b), Income Tax Regs.; e.g., Holland v. United                  
          States, supra at 130-132.  Petitioners do not dispute that this             
          is the applicable legal standard.                                           
               Under the net worth method, a taxpayer's income is equal to            
          the increase in net worth during the taxable year, plus                     
          nondeductible disbursements, minus nontaxable receipts.  Holland            

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