Cash Expend Method to Prove Unreported Income Law and Legal Definition

Cash expenditures method of proving unreported income is based on the theory 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/her reported income together with non-taxable receipts and available cash at the beginning of the year, then the taxpayer has understated his/her income. It involves the 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.