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change in the taxpayer’s net worth3 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,
348 U.S. 121, 132-138 (1954); Brooks v. Commissioner, 82 T.C.
413, 431-432 (1984), affd. without published opinion 772 F.2d 910
(9th Cir. 1985). Deductions are a matter of legislative grace,
and petitioners must prove they are entitled to the deductions.
Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934).
Respondent has established petitioners’ opening net worth
with reasonable accuracy. Petitioners, however, argue that Mr.
Black maintained a cash hoard and that respondent’s determination
of petitioners’ opening net worth does not take into
consideration petitioners’ cash hoard. According to Mr. Black,
as of December 31, 1990, petitioners had accumulated a cash hoard
of between $500,000 and $505,000, consisting of bundles of $100
3Assets are generally listed at their cost rather than at
their current market value. Camien v. Commissioner, 420 F.2d
283, 285 (8th Cir. 1970), affg. T.C. Memo. 1968-12.
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Last modified: March 27, 2008