- 8 -
income. Sec. 446(b); Holland v. United States, 348 U.S. 121
(1954); Webb v. Commissioner, 394 F.2d 366, 371-372 (5th Cir.
1968), affg. T.C. Memo. 1966-81. The reconstruction of income
need only be reasonable in light of all surrounding facts and
circumstances. Giddio v. Commissioner, 54 T.C. 1530, 1533
(1970). The Commissioner is given latitude in determining which
method of reconstruction to apply when a taxpayer fails to
maintain records. Petzoldt v. Commissioner, 92 T.C. 661, 693
(1989).
The Commissioner's determinations generally are presumed
correct, and the taxpayer bears the burden of proving that those
determinations are erroneous.7 Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933); Durando v. United States, 70 F.3d 548,
550 (9th Cir. 1995). The U.S. Court of Appeals for the Ninth
Circuit, to which an appeal of this case would lie, has held that
in order for the presumption of correctness to attach to the
notice of deficiency in unreported income cases,8 the
7 Petitioners argue that, pursuant to sec. 7491(b),
respondent bears the burden of proof because respondent used
statistical methods to reconstruct petitioners’ income. Sec.
7491(b) was enacted as part of the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206,
sec. 3001(c), 112 Stat. 685, 726, and is effective for
examinations commenced on or after July 22, 1998. See Higbee v.
Commissioner, 116 T.C. ___, ___ (2001) (slip op. at 5); RRA 1998
sec. 3001(c), 112 Stat. 685, 727. The examination in this case
commenced prior to July 22, 1998. Accordingly, sec. 7491 is
inapplicable.
8 Although Weimerskirch v. Commissioner, 596 F.2d 358 (9th
(continued...)
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