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Courts have approved methods of reconstruction which project
or extrapolate the taxpayer's income from a limited amount of
information. See, e.g., Bradford v. Commissioner, 796 F.2d 303,
306-307 (9th Cir. 1986), affg. T.C. Memo. 1984-601; Adamson v.
Commissioner, 745 F.2d 541, 548 (9th Cir. 1984), affg. T.C. Memo.
1982-371. In this case, the only records available to
reconstruct petitioner's tax preparation and notary income were
petitioner's Rediform books, notary journal, and copies of client
tax returns prepared by petitioner.
Agent Donovan determined that petitioner had $83,000 and
$122,000 in unreported income from her tax preparation business
for her 1990 and 1991 taxable years, respectively. This amount
was derived by first multiplying the number of Short and Long
Forms disclosed by the 1990 PIL by the appropriate charge
disclosed by the Rediform books, which totaled $82,975 and
$119,735 (PIL Totals) for petitioner's 1990 and 1991 taxable
years, respectively. Agent Donovan then totaled the gross
receipts shown in the Rediform books (Rediform Totals) in the
amount of $77,627. For the 1990 taxable year, Agent Donovan
compared the PIL total of $82,975 to the Rediform total of
$77,627 and determined that tax return preparation income was
$83,000. For the 1991 taxable year, Agent Donovan compared the
PIL total of $119,735 to the Rediform total of $118,476 and
determined that tax return preparation income was $122,000.
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