Rene D. and Rosemary S. Valdes - Page 4

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          calculated petitioner’s personal expenses for his 1996 and 1997             
          expenditures using petitioner’s receipts.  Petitioner did not               
          provide receipts for his 1998 personal expenses, and respondent             
          calculated the 1998 expenditures by averaging the 1996 and 1997             
          expenditures.  Using the cash expenditures method, respondent               
          reconstructed petitioner’s business income as follows:                      
          Year       Reported Income      Reported Expenses     Unreported Income     
          1996      $83,353             $116,163       $32,810                        
          1997      37,804              70,875              33,071                    
          1998      39,064              75,456              36,392                    
          Petitioner contends that the unreported income represents                   
          nontaxable loans or gifts he received from his mother and his               
               This case, upon petitioner’s requests, was continued twice.            
          The second continuance was granted on petitioner’s                          
          representations that he could obtain from Merrill Lynch and Dean            
          Witter “cashier’s checks that were handed to me from my mother to           
          pay * * * [my] bills.”  He alleged that he had the account                  
          numbers of his mother’s accounts at both firms, and that he could           
          track the funds from those accounts into his hands.  According to           
          petitioner, the withdrawals were “in cashier’s checks at the time           
          of withdrawal made out to * * * [petitioner’s mortgage company]”.           
               At trial 16 months later, petitioner testified that he                 
          “didn’t have her [his mother’s] account numbers * * * until after           
          she’s [sic] passed away”.  His mother died approximately 5 months           
          prior to the trial, and well after his earlier representations              

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