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opinion 967 F.2d 590 (9th Cir. 1992); Biddle v. Commissioner,
T.C. Memo. 1989-397; Bruno v. Commissioner, T.C. Memo. 1985-168;
sec. 1.6001-1(a), Income Tax Regs.; sec. 301.6053-4, Proced. &
Admin. Regs. Such records must be retained by the taxpayer “so
long as the contents thereof may become material in the
administration of any internal revenue law.” Sec. 1.6001-1(e),
Income Tax Regs.
Third, when a taxpayer fails to keep records, or maintains
only incomplete or inadequate records of income, or when a
taxpayer’s records are no longer available, the Commissioner may
recompute tips in any manner that clearly reflects income. Sec.
446; Mitchell v. Commissioner, 416 F.2d 101 (7th Cir. 1969),
affg. T.C. Memo. 1968-137; Petzoldt v. Commissioner, 92 T.C. 661,
686-687 (1989); Meneguzzo v. Commissioner, supra at 831. The
Commissioner has great latitude in adopting a suitable method for
reconstructing the taxpayer’s income. Giddio v. Commissioner, 54
T.C. 1530, 1533 (1970); Way v. Commissioner, T.C. Memo. 1990-590.
The amount of income determined by the Commissioner need not be
exact so long as it is based on a reasonable methodology.
Meneguzzo v. Commissioner, supra; Schroeder v. Commissioner, 40
T.C. 30, 33 (1963); Kuras v. Commissioner, T.C. Memo. 1980-32.
Both this Court and the Courts of Appeals have accepted the use
of formulas in the reconstruction of tip income. See, e.g.,
Cracchiola v. Commissioner, 643 F.2d 1383, 1384-1385 (9th Cir.
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