Ronald D. and Shirley A. Blush - Page 6
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has long been sanctioned by the courts. See Clayton v.
Commissioner, 102 T.C. 632, 645 (1994).
Bank deposits are prima facie evidence of income. See Mills
v. Commissioner, 399 F.2d 744, 749 (4th Cir. 1968), affg. T.C.
Memo. 1967-67; Clayton v. Commissioner, supra at 645; Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986). When the Commissioner uses
the bank deposits method of analysis to reconstruct a taxpayer's
income, this method assumes that all money deposited in a
taxpayer's bank account during a given period constitutes taxable
income. The Commissioner must take into account any nontaxable
source or deductible expense of which he has knowledge. See
Clayton v. Commissioner, supra at 646; DiLeo v. Commissioner, 96
T.C. 858, 868 (1991), affd. 959 F.2d 16 (2d Cir. 1992).
Petitioners contend that the funds deposited into their bank
accounts are not taxable income. Petitioners assert the funds
came from a cash hoard comprising gain from prior real estate
transactions and worker's compensation settlements.
Petitioner testified that he did not particularly like
banks, and he wanted to have more control over his money. He
testified that, while he deposited funds, he sometimes withdrew
funds and held the cash. Petitioner attributed his distrust of
banks to "Black Friday" (a date in October 1987 when the stock
market experienced a severe decline). Petitioner testified that
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