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individual Federal income tax return (the return). The return
included a Schedule C. The Schedule C lists Mr. Key as the sole
proprietor of a “multi-level marketing” activity with the name
The Ultimate Comeback. Petitioners reported $495,000 of gross
receipts, $153,816 of expenses, and $341,184 of net profit from
The Ultimate Comeback. The return reported total adjusted gross
income of $341,184 and listed a tax due of $103,273. Petitioners
did not pay any of this amount when they filed the return.
Petitioners did not report or pay any self-employment taxes on
the net profit of The Ultimate Comeback. Petitioners reported no
income from Commonwealth.
OPINION
I. Unreported Income
Every individual liable for tax is required to maintain
books and records sufficient to establish the amount of his or
her gross income. Sec. 6001; DiLeo v. Commissioner, 96 T.C. 858,
867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). For the years in
question, we find that petitioners maintained inadequate books
and records--in fact, they maintained no tax records whatsoever
(i.e., general ledgers, check disbursement records, cash receipts
journals, income or sales journals, or records of summaries).
Where a taxpayer fails to maintain or produce adequate books
and records, the Commissioner is authorized to compute the
taxpayer's taxable income by any method that clearly reflects
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