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1988 and 1989
Petitioner filed no returns for 1988 and 1989. For those
years, respondent determined that petitioner received net income
from Pieces of Eight in the amounts of $37,891 and $58,577,
respectively, based on a check spread, or transcript of checks
drawn on Pieces of Eight’s bank account. The checks that
respondent could not determine were allowable business expenses
were considered to represent personal nondeductible expenses of
petitioner and Ms. Murphy, one half of the amount of which was
allocated to petitioner, and represented net income of Pieces of
Eight. Ms. Murphy testified that petitioner would issue to her
checks drawn on Pieces of Eight’s account that were used to pay
their household expenses. Respondent’s agent claimed at trial
that she had utilized a bank deposit method of reconstructing the
income of Pieces of Eight, but the work papers in the record
concerning 1988 and 1989 do not contain any analysis of Pieces of
Eight’s bank deposits for those years. Furthermore, the
description of the method by which the deficiencies were
determined set forth in the stipulations of the parties and
respondent’s brief makes clear that the determination was based
on expenditures from, rather than deposits into, the Pieces of
Eight bank account. On brief, respondent does not claim that the
deficiencies for 1988 and 1989 were determined on the basis of
the bank deposit method. Indeed, respondent does not
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