- 13 - Petitioner’s returns for the years in issue also gave rise to a criminal tax investigation conducted by Special Agent Dan Wardlaw. Petitioner told Special Agent Wardlaw that he had approximately $140,000 in cash in his safe at the beginning of 1993, but only $5,000 to $10,000 at the end of 1995. Discussion A taxpayer has a duty to maintain adequate records to show whether or not the taxpayer is liable for Federal income tax. Sec. 6001. If a taxpayer fails to maintain or produce such records, the Commissioner may compute a taxpayer’s income and income tax liability by a variety of indirect methods, including the net worth method as used by respondent in this case. See, e.g., Holland v. Commissioner, 348 U.S. 121 (1954); Petzoldt v. Commissioner, 92 T.C. 661 (1989). Petitioner’s records for Grand Video consist of the business account and a cash journal. The cash journal does not record income, and by comparing the annual business account deposits to the gross income reported on Grand Video’s Schedule C it is clear that not all of the income from Grand Video was deposited into the business account. Furthermore, although there was a cash register in Grand Video’s store, it was not used to record rental and sales transactions. Because petitioner’s records do not adequately demonstrate the amount of income he earned each year, it was appropriate for respondent to use an indirect method toPage: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
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