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and that petitioner stated that he paid his business expenses out
of the receipts from his business. Further, the examiner
testified that during the examination petitioner said he did not
have any cash hoard at the beginning of the period under
examination. During his testimony, petitioner failed to deny the
substance of or contradict the testimony of the examiner.
Petitioner, in fact, testified that he paid his son’s salary, a
major expenditure,2 out of what his customers paid him.
The Court finds respondent’s method of reconstructing
petitioners’ income to be reasonable in the light of all the
surrounding circumstances. The Court finds that petitioner paid
his expenses from the proceeds of his business. Since the
business expenses were paid from business proceeds, the Court
concludes that the business income must logically have at least
equaled the business expenses.
Petitioners did not provide any substantiation for the $150
deducted for meal and entertainment expenses for 2003 and
2The amounts claimed for 2001 and 2002 on Schedules C, line
37, as “Cost of labor” greatly exceed reported gross receipts in
either year. There is no cost of labor claimed for 2003.
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Last modified: November 10, 2007