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Although petitioner did keep some records (as shown by respondent's
concessions), his books and records were not adequate to determine his correct
income. Therefore, respondent performed a bank deposits analysis on
petitioner's business checking account. The use of the bank deposits method
for computing income has long been sanctioned by this Court. Clayton v.
Commissioner, 102 T.C. 632, 647 (1994); DiLeo v. Commissioner, 96 T.C. 858,
867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). This analysis revealed excess
deposits in the amount of $80,902, which respondent identified and attributed
to unreported Schedule C gross receipts.
The stipulations show that petitioner failed to report net gambling
income, interest income, and a State tax refund totaling $28,378. He
underreported Schedule C income by $40,335 (by claiming a loss of $19,158
instead of positive net income of $21,177). He also failed to pay self-
employment tax.
Petitioner's return was prepared by Mr. Hassan G. Aslanpour, an Iranian
who was recommended to petitioner by friends. Mr. Aslanpour was not called by
either party, although respondent had listed him as a witness. Respondent
stated that she had decided not to call him because he had no memory of the
return and no records of it. Mr. Aslanpour apparently did not give petitioner
a copy of his return; the copy in evidence came from respondent's files.
At trial petitioner stated that the Schedule C attached to his return
does not bear the name of his company and has no relationship to his income
and expenses. He also said he had never seen this Schedule C before.
However, petitioner did sign his Form 1040, and the loss shown on line 30 of
Schedule C is reflected on page 1 of the Form 1040, line 12. It appears,
however, that Mr. Aslanpour did create the Schedule C out of whole cloth, with
the prime purpose of showing a loss.
During the course of the audit, which first involved a revenue agent and
later an Appeals officer, petitioner was represented at various times by at
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