6
The parties agree that during 1988 petitioner made deposits
to the Ticketline account of approximately $172,279. Respondent,
using the bank deposits and cash expenditures method, determined
this amount to be unreported income. Respondent concedes that
this figure should be reduced to $167,949.
In the notice of deficiency, respondent did not allow for
the cost of tickets sold, but respondent concedes that petitioner
must have had some cost of goods sold. Respondent calculated
cost of goods sold of $70,635 and is willing to concede this
amount. Respondent calculated this amount using the ratio of
cost of goods sold to gross receipts for the taxable year 1987 as
set forth in Johnson I.
Where a taxpayer has failed to maintain adequate records of
the amount and source of his income, and the Commissioner has
determined that the deposits are income, the taxpayer must show
that the Commissioner's determination is incorrect. Estate of
Mason v. Commissioner, 64 T.C. 651, 657 (1975), affd. 566 F.2d 2
(6th Cir. 1977). In the absence of adequate books and records,
the Commissioner may reconstruct a taxpayer's income by any
reasonable method of accounting which clearly reflects income.
Sec. 446; Holland v. United States, 348 U.S. 121, 130-132 (1954).
The bank deposits method has long been approved by the courts as
a method for computing income. Estate of Mason v. Commissioner,
supra at 656. Bank deposits are prima facie evidence of income.
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