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(iii) Failure to maintain accurate records
A taxpayer's failure to maintain accurate records is another
badge of fraud, especially in combination with other indicia.
Merritt v. Commissioner, 301 F.2d 484, 487 (5th Cir. 1962), affg.
T.C. Memo. 1959-172; Reaves v. Commissioner, 295 F.2d 336, 338
(5th Cir. 1961), affg. 31 T.C. 690 (1958); Grosshandler v.
Commissioner, 75 T.C. 1, 20 (1980). The parties stipulated that
petitioner failed to bring any books and records to the audit for
1986 and 1987. This stipulation and respondent's use of the
indirect bank deposits method to reconstruct income demonstrate
that petitioner failed to maintain adequate records. Even the
incomplete nature of petitioner's explanations, especially in
light of the other circumstantial evidence of the conduit nature
of the three bank accounts, especially Safra, only accentuates
the inadequacy of his records of income during 1986 and 1987.
Petitioner's failure to produce canceled checks that could begin
to explain the $206,500 of expenditures in June 1986, payments
displaying the hallmarks of the conduit theory that petitioner
advances to explain the use of Safra to support Ben's
enterprises, is the most eloquent testimony to the inadequacy of
petitioner's records.
(iv) Unexplained bank deposits
While unexplained bank deposits are not themselves
necessarily clear and convincing evidence of fraud, York v.
Commissioner, 24 T.C. 742, 743 (1955), a large discrepancy
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