Sarkis N. and Baka S. Balabanian - Page 7

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          bank deposits method was reasonable and whether petitioners must            
          recognize any portion of the income attributable to the check               
          exchanges in 1990.                                                          
               The Commissioner may use a method to clearly reflect income            
          if a taxpayer does not maintain adequate records.  Sec. 446(b);             
          Holland v. United States, 348 U.S. 121 (1954); sec. 1.446-                  
          1(b)(1), Income Tax Regs.  A bank deposits reconstruction of                
          income is one method the Commissioner may use to determine                  
          income.  DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd.              
          959 F.2d 16 (2d Cir. 1992).  The bank deposits analysis is                  
          conducted by examining deposits into an individual's bank                   
          account.  Reported income and any nontaxable items are subtracted           
          from total deposits in order to determine unreported income.                
          Unexplained bank deposits are prima facie evidence of income                
          where a taxpayer has failed to maintain adequate records.                   
          Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).  The evidence              
          here shows that petitioners' records were inadequate and that               
          there were sources of income petitioners did not report.                    
          Therefore, respondent's use of the bank deposits analysis was               
          justified by the circumstances.                                             
               When using the bank deposits method, the Commissioner is not           
          required to show that each deposit or part thereof constitutes              
          income, Gemma v. Commissioner, 46 T.C. 821, 833 (1966), or that             
          it came from a likely or particular source.  Clayton v.                     
          Commissioner, 102 T.C. 632, 645 (1994); Estate of Mason v.                  




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