Louis E. Peyton - Page 8

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          in the answer.  The change was based on respondent’s decision to            
          rely on an amount from the lower end of a range of values                   
          purportedly supported by the testimony given at petitioner’s                
          criminal trial.                                                             
               Petitioner filed a response to respondent’s proposed                   
          findings and memorandum.  In this document, petitioner again                
          attacked his criminal conviction and the testimony given at the             
          criminal trial and largely repeated or augmented many of the                
          contentions made in previous filings.  Additionally, in response            
          to allegations by respondent that petitioner deposited cash into            
          his personal bank account of $21,000 in 1990 and $24,000 in 1991,           
          petitioner admitted cash deposits were made but claimed, without            
          any documentary support, that the funds represented loans from              
          Hatcher.                                                                    
                                     Discussion                                       
          I.  Unreported Income                                                       
               The Internal Revenue Code imposes a Federal tax on the                 
          taxable income of every individual.  Sec. 1.  Section 61(a)                 
          defines gross income for purposes of calculating taxable income             
          as “all income from whatever source derived”.  This broad                   
          definition includes income obtained from illegal sources.  James            
          v. United States, 366 U.S. 213, 218 (1961); sec. 1.61-14(a),                
          Income Tax Regs.  Respondent has determined that petitioner                 








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