Darrell L. Gaines - Page 12

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          expense records, the cash journal, asset records, and personal              
          and business bank records.  Agent Keinle concluded that                     
          petitioner’s income for each year in issue could not be                     
          accurately determined from his records, and she decided to                  
          reconstruct petitioner’s income for each year using the net worth           
          method.                                                                     
               During her examination, Agent Keinle interviewed petitioner            
          on at least five occasions.  Relying upon information that                  
          petitioner provided during these interviews, information                    
          contained in his records, and information obtained from third               
          parties, she computed his net worth and unreported income as                
          follows (For convenience, amounts are rounded to the nearest                
          dollar.):                                                                   
          Year ending          12/31/92    12/31/93   12/31/94   12/31/95             
          Total assets         $164,346   $240,370    $308,216   $378,660             
          Total liabilities     (16,120)   (52,367)    (85,077)  (114,270)            
          Net worth             148,226    188,003     223,139    264,389             
          Beginning net worth       ---   (148,226)   (188,003)  (223,139)            
          Net worth increase        ---     39,777      35,136     41,251             
          Adjustments               ---    (21,765)    (12,970)    (6,299)            
          Corrected AGI             ---     18,011      22,166     34,951             
          AGI per original return   ---     (7,964)     (4,408)    (2,841)            
          Unreported income         ---     25,975      26,574     37,792             
               The assets included in the above computations are as                   
          follows:                                                                    











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