- 8 -
required to be shown on their tax returns. Petzoldt v.
Commissioner, 92 T.C. 661, 687 (1989). Petitioners failed to
keep sufficient records. Thus, respondent was justified in using
the “specific item” method of proof to determine petitioners' tax
liabilities relating to 1992 and 1994. See Estate of Beck v.
Commissioner, supra at 353-354 (“there is no restriction on the
method or theories by which respondent may test his views that
unreported income exists provided they are reasonably calculated
to disclose the presence or absence of unreported income”).
Accordingly, we reject petitioners’ contention.2
Petitioner received $135,000 and $132,000 relating to 1992
and 1994, respectively. Petitioners, however, reported only
$90,000 in compensation in each year. Petitioners failed to
establish that the checks written for petitioners’ benefit
(e.g., checks written to petitioners’ creditors) were not
includable in their gross income and failed to adequately rebut
respondent’s determination of unreported income. Therefore, we
conclude that petitioners failed to report additional income in
the amounts of $45,000 (i.e., $135,000 income received minus
2 The burden of proof is on petitioners to show that
respondent’s deficiency determination is incorrect. Rule 142(a);
Welch v. Helvering, 290 U.S. 111 (1933). Sec. 7491 is
inapplicable because the examination began before July 22, 1998,
the section’s effective date. Internal Revenue Service
Restructuring & Reform Act of 1998, Pub. L. 105-206, sec.
3001(c), 112 Stat. 685, 726.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011