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Petitioners purchased the 1995 Ford Bronco for Mr. Ruth in 1995,
making a $1,500 cash down payment.
Mr. Ruth received a $19,452 settlement payment in 1990.
Petitioners used this payment mainly (if not entirely) for their
business. In or about January 1990, Mr. Welch deposited $30,000
of his $46,284 settlement into his brokerage account and
immediately thereafter started to withdraw and spend those funds.
By 1991, an insignificant amount of the $30,000 remained in the
account.
OPINION
1. Unreported income
During respondent’s examination of the subject years,
respondent applied the cash expenditures method to determine that
the business’ gross receipts should be increased by $33,599,
$37,317, and $51,955, respectively. Petitioners bear the burden
of proving this determination wrong.3 Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). The right of respondent to
use the cash expenditures method to recompute income is well
settled. United States v. Johnson, 319 U.S. 503, 517 (1943);
3 The notice of deficiency was issued on Apr. 6, 1998.
Where, as here, respondent’s examination was commenced before
July 23, 1998, sec. 7491(a) does not operate to shift the burden
of proof to the Commissioner regarding the deficiencies, nor does
sec. 7491(c) place on the Commissioner the burden of production
respecting the penalties. Internal Revenue Service Restructuring
and Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat.
726.
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