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These additional amounts were computed on the basis of 1991
Bureau of Labor Statistics figures, discounted by 10 percent for
1987 and by 7.5 percent for 1988. The figures each year included
$266 for cigarettes and $1,640 for auto repairs.
Mr. Jacobsen does not smoke cigarettes. Mr. Jacobsen
purchased a new car each year in issue. Since his cars were
always under warranty, Mr. Jacobsen incurred nominal expenses for
auto repairs.
OPINION
I. Issues 1, 2, and 3--Unreported Income
A. The Net Worth Method
A taxpayer is required to maintain records sufficient to
enable the Commissioner to determine his tax liabilities. Sec.
1.6001-1(a), Income Tax Regs. When a taxpayer keeps no books, or
keeps books that are inadequate or demonstrably inaccurate,
section 446(b) authorizes the Commissioner to compute the
taxpayer’s income by any method that clearly reflects his income.
In such cases, the Commissioner may compute a taxpayer’s income
and income tax liability by a variety of indirect methods,
including the net worth method, as used by respondent in this
case. Holland v. United States, 348 U.S. 121 (1954).
If the Commissioner’s determination of tax liability is
calculated according to an acceptable procedure, such as the net
worth method, the taxpayer has the burden of producing evidence
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