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Because respondent has not asserted an increased deficiency in
1992 to reflect the full amount of income deemed admitted, we
disregard the additional $220.
The notices of deficiency for 1993 determined income from
landscaping services totaling $96,228. Petitioners are deemed to
have admitted that they received $74,895 in income from such
services in 1993. Respondent presented no evidence to
substantiate the greater amount determined in the notices of
deficiency. Accordingly, we hold that petitioners received
income of $74,895 in 1993.
2. Cash Expenditures Analysis
The cash expenditures method is a variant of the net worth
method that is designed to reconstruct the income of a taxpayer
who consumes his income during the year and does not invest it.
See Petzoldt v. Commissioner, 92 T.C. 661, 694 (1989). This
method is well accepted by the courts. See United States v.
Johnson, 319 U.S. 503, 517-518 (1943); DeVenney v. Commissioner,
85 T.C. 927, 930 (1985). It is based on the assumption that the
amount by which a taxpayer's expenditures during a taxable year
exceed his reported income has taxable origins, unless the
taxpayer can show that the expenditures were made from some
nontaxable source. See DeVenney v. Commissioner, supra at 930.
Income is reconstructed pursuant to the cash expenditures method
as follows:
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