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that the expenses were ordinary and necessary to Harris
Enterprises' business.4 As to the depreciation expense,
respondent determined that petitioners had not proven their cost
or other basis in the underlying assets, or that the assets were
depreciable. With respect to respondent's recomputed loss of
$30,174 ($73,129 - $42,955), respondent determined that section
469 applied to limit petitioners' current deduction to $25,000.
Exclusive of the business and interest adjustments,
respondent also determined that petitioners understated their
1992 gross income by $17,014. Respondent calculated this
understatement on the bases of respondent's analysis of
petitioners' cash transactions during 1992. The understatement,
as determined by respondent through the analysis, represents the
excess of petitioners' estimated cash expenditures over the
available funds which petitioners were estimated to have based on
known taxable and nontaxable sources. For purposes of this
analysis, respondent referenced a publication of the U.S.
Department of Labor that listed the average annual expenditures
of residents of the United States, and, relying on this
publication, estimated that petitioners' personal living expenses
equaled $36,714. Respondent's analysis did not take into account
any cash that petitioners may have had on hand at the beginning
4 As to the gravel parking lot and water well replacement,
respondent determined alternatively that those items were capital
assets which had to be depreciated over their useful lives.
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