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1987
Petitioner and Ms. Murphy reported none of the business
activity of Pieces of Eight on the 1987 return.4 For that year,
respondent determined the deficiency in income tax using the bank
deposit method. The bank deposit method is a well-accepted means
of establishing the receipt of income. Clayton v. Commissioner,
102 T.C. 632, 645 (1994); DiLeo v. Commissioner, supra at 867;
Estate of Mason v. Commissioner, 64 T.C. 651 (1975), affd. 566
F.2d 2 (6th Cir. 1977).
In general, the bank deposit method reconstructs a
taxpayer’s income by analyzing deposits and withdrawals from all
of a taxpayer’s bank accounts. Dodge v. Commissioner, 96 T.C.
172, 181 (1991), affd. in part and revd. in part and remanded 981
F.2d 350 (8th Cir. 1992). Bank deposits are prima facie evidence
of income, and the Commissioner need not show a likely source
where the taxpayer has the burden of proof. Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986); Estate of Mason v.
Commissioner, supra at 656. When the bank deposit method is
employed, however, the Commissioner must take into account any
nontaxable source or deductible expense of which the Commissioner
4
The only references to their business activities on the
return were the report of (1) purported wage income from Pieces
of Eight and (2) income from an S corporation called “Pieces of
Eight Dive Ctr, Inc.”
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