Bruce David Cohen - Page 6




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          such an enterprise is generally computed on Schedule C, Profit or           
          Loss From Business, by subtracting cost of goods sold and                   
          ordinary and necessary business expenses from the gross receipts            
          of the venture.  For the years at issue, respondent calculated              
          petitioner’s net income from Bicycle Sport through a combination            
          of accepting in whole or in part figures reported on petitioner’s           
          late-filed returns and of employing indirect methods to supply              
          missing or additional data.                                                 
               Taxpayers are required to maintain records sufficient to               
          establish the existence and amount of all items reported on the             
          tax return, including both income and deductions therefrom.  Sec.           
          6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), affd.             
          540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.            
          In absence of books and records adequate to determine a                     
          taxpayer’s proper tax liability, the Commissioner is authorized             
          to reconstruct income by any reasonable method which will clearly           
          reflect income.  Sec. 446(b); Commissioner v. Hansen, 360 U.S.              
          446, 467 (1959); Palmer v. IRS, 116 F.3d 1309, 1312 (9th Cir.               
          1997); Petzoldt v. Commissioner, 92 T.C. 661, 686-687 (1989).               
               As a general rule, the Commissioner’s determinations are               
          presumed correct, and the taxpayer bears the burden of proving              
          error therein.  Rule 142(a); cf. sec. 7491 (generally effective             
          with respect to examinations commencing after July 22, 1998).               
          However, the Court of Appeals for the Ninth Circuit, to which               






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