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v. United States, supra at 125, 137; Estate of Mazzoni v.
Commissioner, 451 F.2d 197, 199 (3d Cir. 1971), affg. Mazzoni v.
Commissioner, T.C. Memo. 1970-37, supplemented by Estate of
Mazzoni v. Commissioner, T.C. Memo. 1970-144. To use the net
worth method, the Commissioner must meet three requirements:
first, the Commissioner must reliably establish a net
worth for taxpayer as of the beginning of the period
under review; second, investigation is required of the
taxpayer's explanation for his net worth increases, if
such "leads" are "reasonably susceptible of being
checked;" finally, the government must suggest a
"likely source" of the unreported income.
Estate of Mazzoni v. Commissioner, supra at 200 (citation and fn.
ref. omitted). Petitioners do not dispute that this is the
applicable legal standard.
3. Whether Respondent Had a Basis in Law for Determining
That Petitioners Are Liable for the Addition to Tax for
Fraud
Respondent's basis in law for determining that petitioners
were liable for the addition to tax for fraud is section 6653(b)
and the many cases which apply it. The parties do not dispute
what legal standards apply under section 6653(b). We conclude
that respondent had a basis in law to determine that petitioners
were liable for the addition to tax for fraud.
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