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issue in the instant cases because unreported income was only one
of several adjustments involved in docket No. 20854-94.
We agree with petitioners that an adjustment to Larry’s
source and application of funds analysis is needed for 1989 and
1990 to account for the compromise settlement of docket No.
20854-94. However, we do not agree with petitioners as to the
amounts to be added as sources of funds for those years. The tax
deficiencies Larry and Nancy ultimately agreed to for those years
($7,140 for 1989 and $6,606 for 1990) are less than the tax
deficiencies set forth in the notice of deficiency ($13,317 and
$16,461, respectively). Thus, it is apparent that not all of the
total adjustments to income set forth in the notice of deficiency
($44,566 for 1989 and $53,012 for 1990) were included in income
in the compromise settlement. See supra note 12. According to
our calculations, Larry and Nancy agreed to 53.6 percent of the
deficiency proposed for 1989 ($7,140 divided by $13,317) and 40.1
percent of the deficiency proposed for 1990 ($6,606 divided by
$16,461). Thus, using our best judgment, applying those
percentages to the total proposed adjustments to income for those
years, we hold that Larry’s sources of funds for 1989 and 1990
should be increased by $23,887 and $21,261, respectively. See
Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930).
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