Theron R. Livingston, Sr. - Page 10




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          year, increased for nondeductible expenses such as living                     
          expenses, and decreased for items attributable to nontaxable                  
          sources such as gifts and loans.  The resulting figure may be                 
          considered to represent taxable income, provided:  (1) The                    
          Commissioner establishes the taxpayer’s opening net worth with                
          reasonable certainty; and (2) the Commissioner either shows a                 
          likely source of unreported income or negates possible nontaxable             
          sources.  See United States v. Massei, 355 U.S. 595, 595-596                  
          (1958); Holland v. United States, supra at 132-138; Brooks v.                 
          Commissioner, 82 T.C. 413, 431-432 (1984), affd. without                      
          published opinion 772 F.2d 910 (9th Cir. 1985).                               
               The use of the net worth method requires “the exercise of                
          great care and restraint” to prevent a taxpayer from being                    
          “ensnared in a system” which is hard for the taxpayer to refute.              
          Holland v. United States, supra at 129.  The taxpayer’s opening               
          net worth is of critical importance.  “The importance of accuracy             
          in this figure is immediately apparent, as the correctness of the             
          result depends entirely upon the inclusion in this sum of all                 
          assets on hand at the outset.”  Id. at 134.  “If the opening                  
          statement is not substantially reliable, the whole intricate                  
          house of cards falls.”  Estate of Phillips v. Commissioner, 246               
          F.2d 209, 213 (5th Cir. 1957).  Respondent must establish the                 
          opening net worth with reasonable certainty.  See London v.                   
          Commissioner, T.C. Memo. 1998-346; Campfield v. Commissioner,                 





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