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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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