- 12 - increase this amount. Items attributable to nontaxable sources decrease this amount. If the resulting figure for the year is greater than the taxable income reported, then the excess represents unreported taxable income. See id. at 125. The Commissioner must establish the opening net worth with reasonable certainty and show a likely source of unreported income or negate nontaxable sources. See id. at 132-138; Brooks v. Commissioner, 82 T.C. 413, 431-432 (1984), affd. without published opinion 772 F.2d 910 (9th Cir. 1985). As of January 1, 1995, petitioners had a zero balance in their bank accounts. Petitioners testified that they did not file income tax returns for 1993 and 1994 because they made less than the amount required to “trigger” the filing requirement. Mr. Key testified that in 1993 petitioners filed for bankruptcy. Mr. Key further testified petitioners had absolutely nothing when they started The Ultimate Comeback. Based on the evidence, we conclude that respondent correctly began the net worth analysis with a zero net worth for petitioners as of January 1, 1995. Respondent then multiplied petitioners’ monthly personal expenditures for 1995 ($2,586.87) by 12. This totals $31,042.44. Next, respondent multiplied petitioners’ monthly rental expense times 12. Respondent adopted $1,190 as the amount of rent. We found that petitioners paid $1,700 for the first 6 months of 1995 and $1,190 for the last 6 months of 1995. Petitioners’ rentalPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
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