Stephen H. Rifkin & Pamela T. Rifkin - Page 8

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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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