- 17 -
manner” and “is entirely flawed and deceptive”.7 On the instant
record, we reject petitioners’ contentions. On that record, we
find respondent’s method of reconstructing petitioners’ income
and the results generated by that method to be reasonable.8
Based on our examination of the entire record before us, we
find that petitioners have failed to establish any error in
respondent’s reconstruction of petitioners’ income on the basis
of the source and application of funds method. Consequently, we
sustain respondent’s determinations in the notice to increase
7Petitioners also complain that respondent’s revenue agent
who examined the joint returns at issue did not testify at trial.
Instead, another revenue agent of respondent testified with
respect to respondent’s indirect method of income reconstruction
in this case. According to petitioners, they “should have the
opportunity to face” the revenue agent who examined their joint
returns for the years at issue. The individual who testified on
behalf of respondent (respondent’s witness) was a revenue agent
who, as of the time of the trial, had worked for respondent for
13 years, having served as a tax auditor responsible for the
examination of individual tax returns for 9-1/2 years. Respon-
dent’s witness testified because the revenue agent who examined
petitioners’ returns for the years at issue was not available to
testify on the date of the trial in this case. Respondent’s
witness reviewed respondent’s administrative file with respect to
the examination of petitioners’ joint returns for the years at
issue and was thoroughly familiar with the contents of that file,
including all of the work papers therein and petitioners’ joint
returns for the years at issue. Respondent’s witness was also
thoroughly familiar with the source and applications of funds
method that respondent used in reconstructing petitioners’
income. We found respondent’s witness to be credible and her
testimony to be reliable.
8Petitioners make no claims that, prior to 1993, they had
accumulated a large amount of cash or that they received amounts
from nontaxable sources during the years at issue.
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