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Federal income tax returns reporting any income from that
activity, nor any income at all, respondent was forced to
reconstruct their income for the subject years. With a proper
determination of petitioners’ income in sight, the agent invited
petitioners to meet with her and bring with them their primary
financial records so that such a proper determination of
petitioners’ income could be made directly from those records.
When petitioners chose not to cooperate with the agent, she was
forced to determine their income by reconstructing it indirectly
through secondary records. Congress has given respondent broad
discretion to use any method that he believes clearly reflects
income when he is forced to reconstruct a taxpayer’s income. See
Estate of Bernstein v. Commissioner, T.C. Memo. 1956-260, affd.
267 F.2d 879 (5th Cir. 1959).
Here, the method of reconstruction utilized by the agent was
reasonable. The agent followed the four-step approach described
above and arrived at numbers, which, although not precise, were
to our minds a sufficient estimation of petitioners’ income from
the newspaper. Whereas respondent’s determination of the
newspaper’s annual gross revenue did not directly reflect any
discounted or complimentary advertisements placed in the October
23, 1997, edition, petitioners, to the extent they believed they
were entitled to any such discount, could have provided (either
during the examination or during this proceeding) documentation
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