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I. Unreported Income
Gross income includes all income from whatever source
derived. Sec. 61(a). Every taxpayer is required to maintain
adequate records of taxable income. Sec. 6001. If a taxpayer
fails to maintain such records, the Commissioner may reconstruct
income in accordance with a method that clearly reflects the full
amount of income received. Sec. 446(b); Meneguzzo v.
Commissioner, 43 T.C. 824, 831 (1965).
Respondent used the bank deposits method to reconstruct
petitioners' income for the years in issue. Bank deposits are
prima facie evidence of income, Tokarski v. Commissioner, 87 T.C.
74, 77 (1986), and under the bank deposits method, all money
deposited into a taxpayer's bank account during a given period is
assumed to be taxable income, DiLeo v. Commissioner, 96 T.C. 858,
868 (1991), affd. 959 F.2d 16 (2d Cir. 1992). Respondent's
determinations are presumed to be correct, and petitioners bear
the burden of proving that respondent's bank deposits analysis is
erroneous. Rule 142(a); Parks v. Commissioner, 94 T.C. 654, 658
(1990).
Petitioners contend that the funds deposited into their
accounts are not taxable income. Their contentions are based
primarily on the testimony of Dr. Kao, Ms. Tu, and Jin Cheng Kao
(Dr. Kao's uncle). Their testimony, however, was vague, evasive,
and otherwise unpersuasive. Petitioners, in an attempt to
corroborate this testimony, presented dubious documentation,
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