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A. Reconstruction of Income
Every individual liable for income taxes is required to
maintain books and records sufficient to establish the amount of
his or her gross income. See sec. 6001; DiLeo v. Commissioner,
96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). In
the absence of books and records, the Commissioner may
reconstruct a taxpayer's income by any method that clearly
reflects income. Sec. 446(b). The choice of the method of
reconstruction of income lies with the Commissioner. See Estate
of Rau v. Commissioner, 301 F.2d 51, 54 (9th Cir. 1962) (citing
Schellenbarg v. Commissioner, 31 T.C. 1269, 1277 (1959), affd. in
part and remanded on another issue 283 F.2d 871 (6th Cir. 1960)),
affg. T.C. Memo. 1959-117. The Commissioner possesses
substantial latitude in reconstructing a taxpayer's income when
the taxpayer fails to maintain records. See Petzoldt v.
Commissioner, 92 T.C. 661, 695-696 (1989).
Here, respondent has reconstructed petitioner’s income using
both information received from third-party payers concerning
payments made with respect to petitioner’s Social Security
number, address, and a business, California Barbecue, with which
he acknowledges involvement; and bank accounts bearing his name,
Social Security number, and address. We accept both methods as
permissible means of reconstructing income.
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Last modified: May 25, 2011