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amounts that were or could have been deposited in the bank
accounts used by Agent Koczergo to reconstruct income for 1993.
ULTIMATE FINDINGS OF FACT
Petitioners failed to report $324,851.31 of gross receipts
on their 1993 income tax return.
Petitioners failed to claim $257,631 in cost of goods sold
for their 1993 income tax year.
OPINION
The focus of the parties' briefs and trial presentations
concerns respondent's determination of unreported income,
increased cost of goods sold, and whether petitioners are liable
for the accuracy-related penalty. Concerning respondent's
reconstruction of petitioners' 1993 income by means of the bank
deposits method, petitioners argue that respondent's methodology
is flawed and that petitioners' accountant's approach, developed
after the audit, more accurately reflects petitioners' income.
Where, as here, taxpayers have failed to provide adequate
records substantiating their income, an indirect method may be
used to reconstruct income. Holland v. United States, 348 U.S.
121 (1954). Respondent used the bank deposits method to
reconstruct petitioners’ income. Petitioners must now prove by a
preponderance of the evidence that respondent's determination is
erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933);
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