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OPINION
I. Unreported Income
The first issue is whether petitioner had unreported gross
receipts from her sole proprietorship, as determined by
respondent, for her 1990, 1991, and 1992 taxable years.
Respondent determined that petitioner had unreported gross income
from her tax preparation and notary business of $87,000,
$128,000, and $153,000 in 1990, 1991, and 1992, respectively.
Petitioner did not file a trial memorandum or brief in this case.
However, based on her testimony at trial, petitioner seems to
assert that respondent's determination is arbitrary.
Respondent may use an indirect method to reconstruct a
taxpayer's income where the taxpayer has failed to provide
adequate records substantiating her income. See, e.g., Holland
v. United States, 348 U.S. 121, 133 (1954). Respondent's method
of income reconstruction is presumptively correct and will be
affirmed as long as it is rational in light of all surrounding
facts and circumstances. See Palmer v. IRS, 116 F.3d 1309, 1312
(9th Cir. 1997); Cracchiola v. Commissioner, 643 F.2d 1383, 1385
(9th Cir. 1981), affg. per curiam T.C. Memo. 1979-3. Petitioner
bears the burden of proving that respondent's method of income
reconstruction is unreasonable. See Palmer v. IRS, supra at
1312.
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