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examination of his income tax returns for the taxable years at
issue.
Respondent, using the bank deposits method, determined that
petitioners had understated gross receipts and overstated various
business expense deductions for the years at issue. Respondent
further determined that petitioners had unreported capital gain
in the amount of $38,700 from the sale of stock in 1990.
Petitioners did not stipulate any facts prior to trial,
provided no documentary evidence other than their returns for the
taxable years at issue, and called no witnesses other than Mr.
Sindik, who did testify on behalf of himself and Mrs. Sindik.
Petitioner testified that he knows exactly the amount of money he
makes on every business transaction, but when asked by the Court
if he had any books reflecting these amounts, petitioner stated:
“I don’t keep books”.
Gross Receipts
The first issue for our decision is whether petitioners
understated gross receipts from Mr. Sindik’s business for taxable
years 1988, 1989, and 1990, in the amounts determined by
respondent. Respondent claims that petitioner failed to keep
adequate records and as a result respondent reconstructed
petitioners’ income for the years at issue using the bank
deposits method.
It is well established that where a taxpayer fails to
maintain adequate records, the Commissioner may prove the
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Last modified: May 25, 2011