- 16 -
Accordingly, we find that the burden of proof with respect
to the underlying deficiencies remains on petitioners.17
B. Reconstruction of Petitioners’ Income
Unreported Income
In the notices of deficiency, respondent determined that
petitioners had additional income for 1995, 1996, and 1997 of
$58,057, $149,774, and $66,347, respectively. In the case of
1995, all additional income is attributable to money that STL
transferred to WPA.18 For 1996 and 1997, the vast majority of
the additional reconstructed income is attributable to STL
payments to WPA.
Section 61(a) defines gross income as “all income from
whatever source derived.” Every person liable for income tax
must maintain books and records sufficient to establish the
amount of his gross income. Sec. 6001; DiLeo v. Commissioner, 96
T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). The
Secretary is authorized and has great latitude in reconstructing
income in accordance with any reasonable method that accurately
reflects actual income. Secs. 446(b), 6001; Petzoldt v.
17Of course, with regard to the fraud penalty, respondent
bears the burden of proof. Secs. 7491(a)(3), 7454(a); see
discussion, infra.
18Although the evidence for 1995 shows total STL deposits
into WPA’s bank account of $65,833, in the notice of deficiency,
respondent only determined additional unreported income of
$58,057. Respondent is not seeking an increase in the deficiency
amount for 1995.
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