- 9 -
sufficient to link petitioners to the receipt of additional
income from Mrs. Possas’s hairdressing activity, and the
determination in the notice of deficiency was neither arbitrary
nor erroneous. See Blohm v. Commissioner, supra at 1548-1549.
Accordingly, petitioners bear the burden of proof with respect to
the unreported income for 1996.
Respondent claimed at trial that petitioners are not
entitled to the previously allowed advertising expense deduction
of $29,585 for 1995. Rather, they are entitled to a deduction of
only $5,156.60 (i.e., the amount that petitioners substantiated
and respondent conceded). Because this is a new matter,
respondent bears the burden of proof with respect to the
disallowed portion of the claimed advertising expense deduction
of $24,428.40. Rule 142(a)(1).
2. Unreported Income
We must first decide whether respondent’s determination that
petitioners had unreported income in 1996 is reasonable. Gross
income includes all income from whatever source derived. Sec.
61(a). Generally, a taxpayer is required to maintain adequate
books and records of income. Sec. 6001; sec. 1.6001-1(a), Income
Tax Regs.
When a taxpayer has failed to provide adequate records
substantiating income, the Commissioner is authorized to
reconstruct the taxpayer’s income by using any reasonable method
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011