Cash Expenditures Method Of Proving Unreported Income

The theory of this method of proof is that if a taxpayer's expenditures and disbursements for a particular taxable year, together with any increase in net worth exceed the total of his reported income together with non-taxable receipts and available cash at the beginning of the year, then the taxpayer has understated his income.

It necessarily involves not only the examination of the person's expenditures and disbursements during the taxable year, but also an examination of his "net worth" at the beginning and at the end of that year.