- 9 -
after taking into account the amount of resources the
taxpayer had on hand at the beginning of a period, the
income received by the taxpayer for the same period is
compared with his expenditures that are not
attributable to his resources on hand or non-taxable
receipts during the period. A substantial excess of
expenditures over the combination of reported income,
non-taxable receipts, and cash on hand may establish
the existence of unreported income. [United States v.
Citron, 783 F.2d 307, 310 (2d Cir. 1986); fn. ref.
omitted.]
Formal opening net worth statements are not required
provided the evidence shows "'the extent of any contribution
which beginning resources or a diminution of resources over time
could have made to expenditures.'" Petzoldt v. Commissioner,
supra at 695 (quoting Taglianetti v. United States, 398 F.2d 558,
565 (1st Cir. 1968)). To carry their burden of proof,
petitioners must show that the expenditures in question were made
from some nontaxable source of funds, such as loans, gifts, or
assets on hand at the beginning of the period. See DeVenney v.
Commissioner, supra at 931. Alternatively, petitioners may show
that the expenditures were allowable business expenses, in which
case they would offset the income presumed to have been received
by them. See Curry v. Commissioner, T.C. Memo. 1991-102.
At trial or on brief petitioners did not question
respondent's determinations, based on the cash expenditures
method, of the amount of income earned by them in 1994 and 1995.
In addition, petitioners are deemed to have admitted that they
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011