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their gross income. When a taxpayer fails to keep the required
books and records, section 446 authorizes the Commissioner to
“reconstruct income in accordance with a method which clearly
reflects the full amount of income received.” Petzoldt v.
Commissioner, 92 T.C. 661, 687 (1989); accord DiLeo v.
Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir.
1992); Parks v. Commissioner, 94 T.C. 654, 658 (1990).
Using the specific items method, respondent reconstructed
petitioner’s gross income for 1990, 1991, and 1992 from bank
records and third-party payor records. Respondent’s method
accurately reflects petitioner’s gross income because the method
calculated petitioner’s income using proceeds that he received
from his farming business. Even though some of the canceled
checks and invoices list Tadd Hoover or Michael Hoover as the
payee, we agree with the Court of Appeals for the Seventh Circuit
that these proceeds were actually petitioner’s gross income16 and
that petitioner “instructed creditors to write checks made out to
his sons, but kept all the proceeds for himself.” United States
v. Hoover, 175 F.3d at 567.
16 Tadd Hoover testified that the checks that he received
from the family business were not his. Tadd Hoover further
testified that he “would sign the back of * * * [the checks] and
let dad do whatever he wanted with them.” The parties stipulated
that the testimony of Tadd Hoover from petitioner’s criminal
proceeding is incorporated as though given during the course of
the trial of the U.S. Tax Court cases.
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