- 6 -
to verify income. Finally, petitioner asserts that the “need to
independently verify the calculation [gross receipts] arose from
the IRS’ distrust of the taxpayer, not the inadequacy of the
records.”
Respondent contends that he was substantially justified
because he relied on petitioner’s books and records in
determining income pursuant to section 446(a), and, when it
became apparent that petitioner’s books and records were
inaccurate, respondent, in concert with petitioner’s counsel,
employed the bank deposits method. Further, respondent claims
that he was substantially justified as to tax year 1994 because
petitioner did not file a tax return, and, therefore, respondent
was required to compute income. It was by use of the bank
deposits method that the parties were able to resolve the amounts
in dispute.
Discussion
A. Section 7430
Section 7430(a) provides that the prevailing party in any
administrative or court proceeding may be awarded a judgment for
(1) reasonable administrative costs incurred in connection with
such administrative proceedings within the Internal Revenue
Service (IRS), and (2) reasonable litigation costs incurred in
connection with such court proceedings. See sec. 7430(a), (c).
The prevailing party must exhaust his administrative remedies,
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011