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revenue agents (Revenue Agent Bank) in the fall of 1993. As a
result, on October 12, 1993, petitioners filed delinquent tax
returns for 1988, 1989, 1990, and 1991. On November 5, 1993, they
filed their 1992 tax return.
Petitioner did not maintain books or records pertaining to his
insurance business. Petitioners did, however, maintain a checking
account at Maryland National Bank under the name Graded Assets
Management. This account was used for both business and personal
purposes. Petitioner provided Revenue Agent Bank with bank
statements and canceled checks that detailed most, if not all, of
his 1992 business activities.
Issue 1. Did Petitioners Underreport Their 1992 Income by $25,112?
Due to the absence of adequate books and records, Revenue
Agent Bank reconstructed petitioners' 1992 income using a bank
deposits analysis. Through the use of this analysis, Revenue Agent
Bank determined that petitioners underreported their 1992 income by
$34,764. The $34,764 represents the difference between the
aggregate amount of deposits to petitioners' Maryland National Bank
checking account ($80,096)2 and the income petitioners reported on
their 1992 tax return ($45,332) (the difference being the
unidentified deposits). At trial, respondent conceded that $11,628
of the original amount of unidentified deposits came from
nontaxable sources. Hence, respondent now asserts there is only
2 See supra note 1.
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