Tommy Owens, Jr. and Dawn R. Owens - Page 17




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          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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