- 9 - A. Unreported Income Gross income generally includes “income from whatever source derived”, unless specifically excluded by statute. Sec. 61(a). Taxpayers are required to maintain records sufficient to establish the amounts of income, deductions, and other items which underlie their Federal income tax liabilities. Sec. 6001; sec. 1.6001- 1(a), (e), Income Tax Regs. If a taxpayer fails to keep adequate books and records, the Commissioner may reconstruct the taxpayer’s income by any method that is reasonable under the circumstances. Petzoldt v. Commissioner, 92 T.C. 661, 687 (1989); see also United States v. Fior D’Italia, Inc., 536 U.S. 238, 243 (2002) (stating that the assessment authority of the IRS is not exceeded “when the IRS estimates an individual’s tax liability--so long as the method used to make the estimate is a ‘reasonable’ one”). The reconstruction need not be exact, so long as it is reasonable and substantially correct. Petzoldt v. Commissioner, supra at 693; Meneguzzo v. Commissioner, 43 T.C. 824 (1965). The use of bank deposits is recognized as a reasonable method of reconstructing income. Parks v. Commissioner, 94 T.C. 654, 658 (1990); Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Nicholas v. Commissioner, 70 T.C. 1057, 1065 (1978). This method is premised on the assumption that the deposits into a taxpayer’s account consist of income from taxable sources. See sec. 61(a).Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011