-9-
amounts determined by respondent--without taking into account
"any possible undocumented business expenses paid with currency,
money orders, or non-traceable documents".
As a result, with respect to respondent's deficiency
determinations for 1989-92, we need only consider whether
petitioner is entitled to any additional deductions on account of
business expenses paid in cash. Respondent has determined (and
urges us to hold) that petitioner is not entitled to any such
additional deductions for 1989-92. Petitioner asserts that he
paid hundreds of thousands of dollars of business expenses in
cash during those years.
A. The Evidence--Petitioner's Expert's Report
The only evidence petitioner offered was the expert's report
(and related exhibits) and testimony of Edward W. Sager, a
certified public accountant with experience in the construction
industry.
Mr. Sager's report does not identify any specific expenses,
or any class of expenses, paid by petitioner in cash during the
years in issue. The report also does not attempt to calculate
petitioner's actual receipts, expenses, or taxable income for any
of those years. Due to "a lack of record keeping" and "the lack
of hard financial record", Mr. Sager instead tried to estimate a
"reasonable annual income level" for petitioner, for each of the
years in issue. The estimates in Mr. Sager's report were based
primarily on two sources: (1) Respondent's reconstruction of
petitioner's gross receipts; and (2) information regarding
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