- 21 -- 21 -
74, 77 (1986). Petitioners bear the burden of proving that
respondent’s determinations of income based on the bank deposits
method are erroneous. Clayton v. Commissioner, 102 T.C. 632, 645
(1994); DiLeo v. Commissioner, 96 T.C. 858, 869 (1991), affd. 959
F.2d 16 (2d Cir. 1992). Petitioners may satisfy that burden by
establishing that the deposits at issue are not taxable or
constitute income that they previously reported. See Calhoun v.
United States, 591 F.2d 1243, 1245 (9th Cir. 1978); Marcello v.
Commissioner, 380 F.2d 509, 511 (5th Cir. 1967), affg. T.C. Memo.
1964-303; Nicholas v. Commissioner, 70 T.C. 1057, 1064 (1978).
Respondent does not have to show that the deposits at issue
are taxable.13 Respondent nonetheless, through argument at trial
and on brief, offers a reason as to why the deposits of K & H's
and Ms. Velilla's funds that remain in dispute constitute income,
viz., they were deposits of funds misappropriated by petitioner.
Respondent also offers a reason, through argument at the conclu-
sion of trial14 and on brief, as to why the balance of the
Kabeiseman loan proceeds that was not repaid as of the end of
1990 (i.e., $19,310.20) constitutes income to petitioners for
that year; viz., that balance was forgiven or discharged by Mr.
13 Respondent must, however, take into account any nontaxable
source of a deposit of which respondent has knowledge. Clayton
v. Commissioner, 102 T.C. 632, 645-646 (1994).
14 Respondent conceded at the conclusion of the trial that the
funds totaling $29,000 that Mr. Kabeiseman transferred to peti-
tioner and that petitioner deposited into one of petitioners'
accounts during 1989 were loans.
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