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81.4 Cash Expenditures Method In this case the Government relies upon the so-called " 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 the taxpayer's reported income together with non-taxable receipts and available cash at the beginning of the year, then the taxpayer has understated [his] [her] income. The " cash expenditures method" necessarily involves not only the examination of the Defendant's expenditures and disbursements during the taxable year, but also an examination of the Defendant's "net worth" at the beginning and at the end of that year. A person's "net worth" at any given date is the difference between such person’s total assets and total liabilities on that date. It is the difference between what one owns and what one owes (measuring the value of what one owns by its cost rather than unrealized increases in market value). If the evidence establishes beyond a reasonable doubt that the Defendant's net worth increased during a taxable year, then you may infer that the Defendant had receipts of money or property during that year; and if the evidence also establishes that those receipts cannot be accounted for by non- taxable sources, then you may further infer that those receipts were taxable income to the Defendant. In addition to the matter of the Defendant's net worth, if the evidence establishes beyond a reasonable doubt that the Defendant spent money during the year on living expenses, taxes and other expenditures, which did not add to the Defendant's net worth at the end of the year, then you may infer that those expenditures also came from funds received during the year; and, again, if the evidence establishes that those receipts cannot be accounted for by non-taxable sources, then you may further infer that those funds were also taxable income to the Defendant (provided, of course, the expenditures were not for items which would be deductible on the Defendant's tax return). Because the " net worth method" of proving unreported income involves a comparison of the Defendant's net worth at the beginning of the year and the Defendant's net worth at the end of the year, the result cannot be accepted as correct unless the starting net worth is reasonably accurate. In that regard the proof need not show the exact value of all the assets owned by the Defendant at the starting point so long as it is established that the assets owned by the Defendant at that time were insufficient by themselves to account for the subsequent increases in the Defendant's net worth. So, if you should decide that the evidence does not establish with reasonable certainty what the Defendant' s net worth was at the beginning of the year, you should find the Defendant not guilty. In determining whether or not the claimed net worth of the Defendant at the starting point (or the beginning of the year) is reasonably accurate, you may consider whether Government agents sufficiently investigated all reasonable "leads" suggested to them by the Defendant, or which otherwise surfaced during the investigation, concerning the existence and value of other assets. If you should find that the Government' s investigation has either failed to reasonably pursue, or to refute, plausible explanations advanced by the Defendant or which otherwise arose during the investigation concerning other assets the Defendant had at the beginning of the year (or other non-taxable sources of income the Defendant had during the year), then you should find the Defendant not guilty. Notice, however, that this duty to reasonably investigate applies only to suggestions or explanations made by the Defendant, or to reasonable leads that otherwise turn up; the Government is not required to investigate every conceivable asset or source of non-taxable funds. If you decide the evidence in the case establishes beyond a reasonable doubt the maximum possible amount of the Defendant's net worth at the beginning of the tax year, and further establishes that any increase in the Defendant's net worth at the end of that year, together with non-deductible expenditures made during the year, did substantially exceed the amount of income reported on the Defendant's tax return for that year, you should then proceed t o decide whether the evidence also establishes beyond a reasonable doubt that such additional funds represented taxable income (that is, income from taxable sources) on which the Defendant willfully attempted to evade and defeat the tax as charged in the indictment.