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Respondent’s net worth calculation is set out in the
appendix. Amounts in bank accounts held in the name of
petitioner’s mother and held jointly by petitioner and his mother
are included in the net worth analysis. Inclusion of these
accounts in petitioner’s net worth is supported by the evidence.
The net worth calculation is supported by the evidence and
accurately shows petitioner’s net worth and expenditures and
establishes that petitioner had net taxable income of $33,685,
$24,647, $108,609, and $18,038 for the years 1987, 1988, 1989,
and 1990, respectively.
OPINION
When a taxpayer keeps no books, or keeps books that are
inadequate, section 446(b) authorizes the Internal Revenue
Service to compute the taxpayer’s income by any method that
clearly reflects income. See sec. 446(b). The “net worth
method” has been accepted by the courts as satisfying this
legislative mandate. Holland v. United States, 348 U.S. 121
(1954). The Supreme Court described the method as follows:
In a typical net worth prosecution, the
Government, having concluded that the taxpayer’s
records are inadequate as a basis for determining
income tax liability, attempts to establish an “opening
net worth” or total net value of the taxpayer’s assets
at the beginning of a given year. It then proves
increases in the taxpayer’s net worth for each
succeeding year during the period under examination and
calculates the difference between the adjusted net
values of the taxpayer’s assets at the beginning and
end of each of the years involved. The taxpayer’s
nondeductible expenditures, including living expenses,
are added to these increases, and if the resulting
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