- 16 -
the pay telephone. Petitioners bear the burden of proving
that respondent’s determination is incorrect as to each of
those adjustments. See Rule 142(a).
Petitioners argue that respondent’s use of the unit
markup method of reconstructing income is improper because
Crabtree Investments maintained detailed and adequate
records. Petitioners reason that, because its records
were consistent with the information reported on its tax
returns, we must accept the records as clearly reflecting
its taxable income. We disagree.
Taxpayers are required to keep adequate books or
records from which their correct tax liability can be
determined. See sec. 6001. The Commissioner may test
the adequacy of a taxpayer’s books and records by any
reasonable method which, in the Commissioner’s judgment,
properly reflects taxpayer’s taxable income. See Holland
v. United States, 348 U.S. 121, 131-132 (1954); Lipsitz v.
Commissioner, 21 T.C. 917, 931 (1954), affd. 220 F.2d 871
(4th Cir. 1955). If the Commissioner determines that a
taxpayer’s books and records are not adequate, then the
Commissioner is entitled to reconstruct the taxpayer’s
income by any reasonable means. See sec. 446(b); Webb v.
Commissioner, 394 F.2d 366, 371-372 (5th Cir. 1968), affg.
T.C. Memo. 1966-81.
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011