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records with which she was provided. She decided to reconstruct
petitioners’ income using the cash T-account method and computed
petitioners’ unreported income for each year in issue as follows:
Year Income per return Expenses Unreported income
1992 $171,718 $311,882 $140,164
1993 191,844 239,445 47,601
1994 180,735 215,195 34,460
Using a ratio derived from the incomes reported on the
Schedules C and E, the revenue agent allocated the unreported
income between those schedules as follows:
Year Schedule C Schedule E Total
1992 $35,041 $105,123 $140,164
1993 10,472 37,129 47,601
1994 5,514 28,946 34,460
The revenue agent relied on depreciation schedules that
were apparently created in connection with an examination of
petitioners’ returns for years preceding 1992 and brought the
schedules forward to the years in issue. As a result,
petitioners’ depreciation deductions were adjusted (reduced) as
follows:
Year Schedule C Schedule E Total
1992 $11,629 $13,239 $24,868
1993 11,916 14,105 26,021
1994 16,011 14,594 30,605
The revenue agent did not question the charitable
contribution deduction claimed for any year in issue.
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Last modified: May 25, 2011