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their personal income tax liability. Second, respondent applied
the net worth calculation to each year only after respondent
audited Nanny’s 1988 taxable year and determined that some of
Nanny’s cash receipts had been commingled with petitioners’
personal funds and that Nanny’s records did not allow for a
proper accounting of the commingled funds. The bare summaries
which petitioners maintained as to Nanny’s income did not allow
respondent to determine with any precision or certainty the
amount of the commingled funds which were attributable to Nanny’s
but which Nanny’s no longer retained (i.e., were spent by
petitioners on personal items). Whereas Mr. Mason performed a
calculation under which he was assured as to the amount of any
loan between petitioners and Nanny’s on account of the commingled
funds, we do not have the same level of assurance in that
calculation to hold respondent to it. Third, respondent
performed the net worth calculations only after analyzing
petitioners’ lifestyle and determining that their lifestyle did
not appear to comport with their reported income. In this
regard, respondent had received the STRs which the Bank had
issued as to petitioners reporting that they had entered into
various “suspicious” cash transactions. Under the facts herein,
we conclude that respondent was entitled to use the net worth
method to compute petitioners’ income for each subject year.
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