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the books and records are regularly kept in the course of the
taxpayer’s business, then they will not be disregarded absent a
showing that they are inadequate or erroneous. See Lark Sales
Co. v. Commissioner, 437 F.2d 1067, 1078 (7th Cir. 1970), affg.
in part and revg. in part Medd v. Commissioner, T.C. Memo. 1968-
244; Estate of Hill v. Commissioner, 59 T.C. 846, 857 (1973).
However, the Commissioner is not bound to accept a
taxpayer’s books and records at face value; the books and records
may be more consistent than truthful. See Holland v. United
States, 348 U.S. 121, 132 (1954). Even when the taxpayer keeps
books and records that support the tax return as filed, an
inquiry outside of the books and records may be necessary,
because the books and records may support the tax return as filed
yet omit taxable income. See Campbell v. Guetersloh, 287 F.2d
878, 880 (5th Cir. 1961).
When a taxpayer fails to keep adequate records, the
Commissioner is authorized to determine the existence and amount
of the taxpayer’s income by any method that clearly reflects
income. See sec. 446(b); Holland v. United States, supra;
Mallette Bros. Const. Co., Inc. v. United States, 695 F.2d 145,
6(...continued)
to income taxes] * * * shall keep such permanent books of
account or records, including inventories, as are sufficient
to establish the amount of gross income, deductions,
credits, or other matters required to be shown by such
person in any return of such tax or information.
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