Manuel and Margaret Karcho - Page 16

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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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