Wayne Payne and Dorene J. Payne - Page 14

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          its income.  Petitioners’ explanations of the understatements               
          were implausible.  Their practice of cashing checks at the Money            
          Exchange instead of their bank concealed income from their                  
          accountant and respondent, and enabled them to deal in cash.  Mr.           
          Payne twice lied to respondent’s revenue agents when asked how              
          the income from the extras was distributed.  Respondent has shown           
          clear and convincing evidence that petitioners filed their 1993,            
          1994, and 1995 returns with the intent to evade taxes.                      
          Therefore, the 3-year period of limitations under section 6501(a)           
          does not apply to petitioners’ 1993, 1994, and 1995 years, and              
          respondent is not barred from assessing any deficiencies in                 
          petitioners’ taxes for those years.                                         
          III.  Unreported Income in 1994 From HRDC                                   
               If a taxpayer has not maintained business records or its               
          business records are inadequate, the Commissioner is authorized             
          to reconstruct the taxpayer’s income by any method that, in the             
          Commissioner’s opinion, clearly reflects that taxpayer’s income.            
          Sec. 446(b); Parks v. Commissioner, 94 T.C. at 658; A.J. Concrete           
          Pumping, Inc. v. Commissioner, T.C. Memo. 2001-42.  The                     
          Commissioner’s reconstruction need not be exact, but it must be             
          reasonable.  A.J. Concrete Pumping, Inc. v. Commissioner, supra.            
          Respondent argues that petitioners received $222,735 in                     
          unreported income from HRDC in 1994.  Respondent’s reconstruction           
          of petitioners’ 1994 income is based on HRDC’s sales and extras             

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