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OPINION
A. Respondent’s Determination
Respondent determined that petitioner had unreported income
of $139,425 in 1993, $239,655 in 1994, and $375,637 in 1995.
Petitioner disputes respondent’s determination of his gross
receipts for 1993 and costs of goods sold and business expenses
for each year in issue.
Petitioner must keep records which are sufficient to
calculate his tax liability. Sec. 6001. Where, as here, a
taxpayer keeps inadequate records, the Commissioner may
reconstruct the taxpayer’s gross receipts and costs to determine
the taxpayer’s unreported income. Webb v. Commissioner, 394 F.2d
366, 373 (5th Cir. 1968), affg. T.C. Memo. 1966-81. As the U.S.
Court of Appeals for the Fifth Circuit said in Webb v.
Commissioner, supra at 373:
Arithmetic precision was originally and exclusively in
* * * [the taxpayer’s] hands, and he had a statutory
duty to provide it. He did not have to add or
subtract; rather, he had simply to keep papers and data
for others to mathematicize. Having defaulted in his
duty, he cannot frustrate the Commissioner’s reasonable
attempts by compelling investigation and recomputation
under every means of income determination. * * *
Respondent reconstructed petitioner’s income for 1993-95
using the bank deposits method because petitioner did not have
adequate books and records. Petitioner points out that Williams
did not account for amounts petitioner paid to vendors other than
Jindge Zhen and Henry’s Gifts even though the documents that
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Last modified: May 25, 2011