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that he had her account numbers. He further testified that his
mother would sell her stocks and bonds and that “she would always
go to the bank and draw it out in cash.” There was no mention of
the alleged amounts paid to petitioner’s mortgage company by
cashier’s checks drawn on his mother’s accounts.
Discussion
Unreported Income
A taxpayer is required to maintain records sufficient to
establish the amount of his or her income and deductions. Sec.
6001; sec. 1.6001-1(a), (e), Income Tax Regs. If the taxpayer
does not, the Commissioner is authorized by section 446 to
reconstruct the taxpayer’s income. Petzoldt v. Commissioner, 92
T.C. 661, 693 (1989). The source and application of funds method
(also referred to as the cash expenditures method) is an accepted
method to reconstruct income. United States v. Johnson, 319 U.S.
503, 517-518 (1943).
The cash expenditures method is based on the assumption that
the amount by which a taxpayer’s expenditures during a taxable
period exceed his reported income has taxable origins, absent
some explanation by the taxpayer. Burgo v. Commissioner, 69 T.C.
729, 742 (1978). To prevail, petitioner must establish that
either someone else made the expenditures or that the funds used
for the expenditures were obtained from nontaxable sources, such
as loans, gifts, inheritances, or assets available at the
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