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B. Discussion
1. Justification for Reconstruction
Respondent’s determinations as to matters of fact in the
notice of deficiency are presumed to be correct, and petitioner
has the burden of proving otherwise. See Rule 142(a);4 Welch v.
Helvering, 290 U.S. 111, 115 (1933); Anson v. Commissioner, 328
F.2d 703, 706 (10th Cir. 1964), affg. Bassett v. Commissioner,
T.C. Memo. 1963-10.
Gross income includes income derived from business. See
sec. 61(a)(2). Every person subject to income tax is required to
keep books and records that establish the amount of gross income
and deductions shown by that person on that person’s income tax
return. See sec. 6001;5 sec. 1.6001-1(a), Income Tax Regs.6 If
4Unless indicated otherwise, all Rule references are to the
Tax Court Rules of Practice and Procedure.
5Sec. 6001 provides, in pertinent part, as follows:
SEC. 6001. NOTICE OR REGULATIONS REQUIRING RECORDS,
STATEMENTS, AND SPECIAL RETURNS.
Every person liable for any tax imposed by this title
[title 26, the Internal Revenue Code of 1986], or for the
collection thereof, shall keep such records, render such
statements, make such returns, and comply with such rules
and regulations as the Secretary may from time to time
prescribe. * * *
6SEC. 1.6001-1 Records.
(a) In general. Except as provided in paragraph (b) of
this section [relating to farmers and wage-earners], any
person subject to tax under subtitle A of the Code [relating
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