- 26 -
establish either a likely source for the unreported income or
disprove nontaxable sources alleged by the taxpayer. DiLeo v.
Commissioner, supra at 873-874; Parks v. Commissioner, 94 T.C.
654, 661 (1990). Proof of a likely source necessarily negates
possible nontaxable sources. United States v. Abodeely, 801 F.2d
1020, 1025 (8th Cir. 1986).
Respondent’s bank deposit analysis for 1987 was carefully
performed. Respondent’s agent analyzed the deposits made in
Pieces of Eight’s bank account for 1987, excluding the deposits
that could be identified as transfers from other accounts and
considering claims of loans made to the business, which were
rejected because of a lack of substantiation. Respondent’s agent
also analyzed the checks drawn on the account as well as other
expenditures, and allowed as cost of goods sold or deductible
expenses those payments that were shown to be attributable to the
business of Pieces of Eight. Ms. Murphy and Mr. Louwers assisted
the agent in establishing the allowable amount of those items.
The difference between the net deposits and the total cost of
goods sold and expenses allowed was determined to be the taxable
income of Pieces of Eight. Respondent has shown a likely source
for the unreported income in issue; to wit, Pieces of Eight, of
which petitioner was coowner. Although respondent, having
established a likely source of petitioner’s unreported income,
need not negate nontaxable sources of that income, DiLeo v.
Page: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 NextLast modified: May 25, 2011