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the total cash receipts recorded on the Meter Readings Sheets
exceeded the amount reported on Banner’s return.
The record in this case demonstrates an evidentiary
foundation for respondent’s determination of unreported income.
Petitioners do not dispute that Mr. Karcho wholly owned Banner,
an S corporation that operated a cash-based amusement arcade.
Thus, petitioners have the burden of showing error in
respondent’s determination of unreported income. See Pittman v.
Commissioner, 100 F.3d 1308, 1313 (7th Cir. 1996), affg. T.C.
Memo. 1995-243; United States v. Walton, 909 F.2d 915, 918 (6th
Cir. 1990).
Taxpayers are required to keep such records as are
sufficient to establish taxable income. See sec. 1.6001-1(a),
Income Tax Regs. If the taxpayer does not keep such records or
the records are inaccurate, the Commissioner has “great latitude”
to reconstruct the taxpayer’s income by any reasonable means.
Giddio v. Commissioner, 54 T.C. 1530, 1532-1534 (1970); see
Harbin v. Commissioner, 40 T.C. 373, 377 (1963). In the instant
case, petitioners are in a largely untenable position with
respect to their records, it having been discovered that they
kept two sets of books, each appearing to record the income of
Banner. Petitioners have effectively conceded that the Daily
Income/Cash Receipts records did not accurately record Banner’s
gross income and expenses, due to their stipulation that the
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