- 15 -
to the contrary. Helvering v. Taylor, 293 U.S. 507 (1935); Simon
v. Commissioner, 248 F.2d 869, 874 (8th Cir. 1957), affg. U.S.
Packing Co. v. Commissioner, T.C. Memo. 1955-194. Generally, the
taxpayer will bear not only the burden of production, but also
the burden of proving by a preponderance of the evidence that the
Commissioner’s assessment is “arbitrary and excessive”.
Helvering v. Taylor, supra at 515; Boles Trucking, Inc. v. United
States, 77 F.3d 236 (8th Cir. 1996); Mattingly v. United States,
924 F.2d 785, 787 (8th Cir. 1991).
Under the net worth method, taxable income is computed by
reference to the change in the taxpayer’s net worth8 during a
year, increased for nondeductible expenses such as living
expenses, and decreased for items attributable to nontaxable
sources such as gifts and loans. The resulting figure may be
considered to represent taxable income, provided: (1) The
Commissioner establishes the taxpayer’s opening net worth with
reasonable certainty, and (2) the Commissioner either shows a
likely source of unreported income or negates possible nontaxable
sources. United States v. Massei, 355 U.S. 595, 595-596 (1958);
Holland v. United States, supra at 132-138; Brooks v.
Commissioner, 82 T.C. 413, 431-432 (1984), affd. without
published opinion 772 F.2d 910 (9th Cir. 1985).
8Assets are generally listed at their cost rather than at
their current market value. Camien v. Commissioner, 420 F.2d
283, 284-285 (8th Cir. 1970), affg. T.C. Memo. 1968-12.
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