Maria E. Magallon - Page 6

                                        - 5 -                                         
          I.   Unreported Schedule C Gross Receipts                                   
               Section 6001 requires a taxpayer to maintain sufficient                
          records to allow for the determination of the taxpayer’s correct            
          tax liability.  Petzoldt v. Commissioner, 92 T.C. 661, 686                  
          (1989).  If a taxpayer fails to maintain or does not produce                
          adequate books and records, the Commissioner is authorized to               
          reconstruct the taxpayer’s income.  See sec. 446; Petzoldt v.               
          Commissioner, supra at 686-687.  Indirect methods may be used for           
          this purpose.  Holland v. United States, 348 U.S. 121 (1954).               
          The Commissioner’s reconstruction need only be reasonable in                
          light of all the surrounding facts and circumstances.  Petzoldt             
          v. Commissioner, supra at 687; Giddio v. Commissioner, 54 T.C.              
          1530, 1533 (1970).                                                          
               The evidence shows that petitioner failed to provide                   
          adequate records to account for the gross receipts from her flea            
          market sales.  Therefore, it was reasonable for TCO Martin to use           
          the cash T analysis, an indirect method, to reconstruct                     
          petitioner’s income for 2002.                                               
               The cash T analysis is performed by setting up a table with            
          income items (debits) on the left side of the “T” account and               
          expenses (credits) on the right side of the “T” account.  See,              
          e.g., Owens v. Commissioner, T.C. Memo. 2001-143.  Its purpose is           
          “to measure a taxpayer’s reported income against personal                   
          expenditures to determine whether more was spent than was                   

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011