© D.L. Crumbley
Net Worth Method
The net worth method is a common indirect balance sheet approach to estimating income. To use the net worth method, an IRS agent or forensic accountant must:
Calculate the person’s net worth (the known assets less known liabilities) at the beginning and ending of a period
Add nondeductible living expenses to the increase in net worth
Account for any difference between reported income and the increase in net worth during the year as (a) nontaxable income and (b) unidentified differences
Hollard v. U.S., 348 U.S. 121 (1954).