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registration with the Georgia Department of Revenue.
The auction’s primary activity was selling items such as
toys, tools, furniture, and collectibles that it acquired in
bulk. Petitioner, a licensed auctioneer, worked at the auction
and as a buyer, traveled to different locations to acquire the
items subsequently sold at the auction. Petitioner’s sister also
worked at the auction.
Petitioner cosigned and made payments on several bank loans
which were used for the benefit of his father and the auction.
The total amount advanced to petitioner’s father was $107,036.
Petitioner did not have an ownership interest in the auction. In
1992, a fire completely destroyed the auction, for which
petitioner’s father and stepmother claimed a casualty loss
deduction of $55,825 on their Form 1040 for the 1992 tax year.
Petitioners’ Income as Determined by Respondent for 1991
For the tax year 1991, respondent, using the source and
application of funds method, determined that petitioners had
unreported income. To compute unreported income using this
method, the funds petitioners used were identified through their
expenditures during the tax year 1991 and then compared with
petitioners’ total available funds from all sources during the
tax year 1991. Where the expenditures exceeded known available
sources of funds, the difference was determined to be income. As
part of the calculation, respondent excluded funds that were
accumulated during prior taxable years.
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