- 28 -
Consequently, we do not consider it appropriate to review
respondent’s method using the standards developed for the bank
deposit method.10
Instead, we shall consider whether respondent has carried
the burden of proving that underpayments of tax occurred for
those years using the standards customarily applied to the cash
expenditures method. Evidence of expenditures alone is not
sufficient to establish the existence of unreported income for a
taxable year where the Commissioner has the burden of proof;
rather, there must be sufficient proof to support an inference
that the expenditures are made from currently taxable sources.
Marcus v. United States, 422 F.2d 752, 755 (5th Cir. 1970);
United States v. Nunan, 236 F.2d 576, 582 (2d Cir. 1956); Olinger
v. Commissioner, 234 F.2d 823, 824 (5th Cir. 1956), affg. in part
and revg. in part T.C. Memo. 1955-9.
As noted above, while the Commissioner need not establish an
opening net worth in order to apply the bank deposit method, the
Commissioner must, as a prerequisite to establishing that
expenditures during a taxable year are made from currently
taxable income, show the "'extent of any contribution which
9 (...continued)
deposits into the account were not available.
10
We note that, even if we were to apply those standards, we
would find, essentially for the reasons set forth below, that
respondent had not carried the burden of proving an underpayment
of tax for 1988 or 1989.
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