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reconstruct their income. According to petitioner, the excess of
expenditures over reported income for each year is accounted for
by a cash hoard that he maintained in a safe in his house. The
revenue agent rejected petitioner’s claim, and we do likewise.
See, e.g., Parks v. Commissioner, 94 T.C. 654, 663 (1990).
Rejecting petitioner’s cash hoard claim, however, does not
require us to accept respondent’s computation. Although we find
that respondent’s use of an indirect method is appropriate, the
analysis itself is not without problems. For example, the
revenue agent acknowledged that her analysis might have
overstated petitioners’ unreported income for each year insofar
as she included in her analysis expenditures that petitioners
paid by check, plus all itemized deductions, without adjusting
for duplications for those itemized deductions that were paid by
check.
Other problems exist with respect to the revenue agent’s
analysis. For example, her analysis for 1992 includes an
expenditure of $26,600 for new roofs for one or more of the
rental properties. With respect to this item, the revenue agent
relied on handwritten entries on the above-referenced
depreciation schedules but could not identify who made the
notations or why they were made. Petitioner denied that any
amount was expended for new roofs on any of his rental properties
during 1992, and we accept his testimony on the point.
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