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Schwarzkopf v. Commissioner of Internal Revenue

decided: July 10, 1957.

GEORGE SCHWARZKOPF, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.



Author: Staley

Before GOODRICH, STALEY and HASTIE, Circuit Judges.

STALEY, Circuit Judge.

A challenge to the Commissioner's use of the net worth method of determining income is presented by this petition seeking review of a decision of the Tax Court of the United States.

Petitioner George Schwarzkopf, an oculist and eye surgeon, was a resident of Atlantic City, New Jersey, during 1947 through 1951, the taxable years under review. His residence contained not only his living quarters but also his office, operating room, and hospital rooms. Taxpayer kept his own receipts book from which he reported his yearly income. He admitted that many of the sums entered on his receipts book represented not gross but net fees, after deducting certain hospitalization expenses. Taxpayer did not show any of the receipts from these expenses to the investigating agents, and most of the receipts from earlier years were admittedly destroyed.

Finding a substantial discrepancy between bank deposits and reported income, the Commissioner reconstructed the income of Schwarzkopf by resort to the net worth method, with the following comparative results:

Year Net income reported Net income as determined

by respondent Unreported

taxable income

determined by

respondent

1946 $14,688.25 $49,140.24 $34,451.99

1947 14,244.31 31,908.91 17,664.60

1948 14,200.40 50,744.70 37, 544.30

1949 16,040.59 ...


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