- 8 - Jenkins discussed with petitioners each tax return she prepared for them. When Jenkins asked petitioners whether all of their income was accounted for, petitioners answered affirmatively. Petitioners did not tell Jenkins about any income they received from illegal gambling activities. On their 1987, 1988, 1989, and 1990 Federal income tax returns, petitioners reported total income (or loss) in the following amounts: Total Income Year (Loss) Reported 1987 $8,403 1988 (5,692) 1989 19,422 1990 20,975 Petitioners filed their 1987, 1988, 1989, and 1990 Federal income tax returns on November 17, 1989; October 10, 1989; April 19, 1991; and April 15, 1991, respectively. Respondent’s Income Reconstruction The Internal Revenue Service audited petitioners’ 1987, 1988, 1989, and 1990 Federal income tax returns. During that audit, respondent’s revenue agent concluded that petitioners’ records were inadequate. Consequently, the revenue agent performed a bank deposits plus cash expenditures analysis to reconstruct petitioners’ income. The revenue agent’s analysis, which is reproduced as the appendix to this opinion, reflects these four steps: First, thePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
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