Joao Montoro and Neuza Paula - Page 20

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          F.2d 210, 212 (6th Cir. 1954), revg. and remanding a Memorandum             
          Opinion of this Court.  Petitioner-husband's testimony was                  
          plausible and, we believe, generally truthful.                              
               3.   Whether Respondent Investigated Leads                             
               Petitioners argue that respondent did not investigate                  
          relevant leads to their nontaxable sources of deposits.  We                 
          disagree.  Petitioners first told Davis that they had a                     
          substantial cash hoard in Brazil in March 1994.  Respondent could           
          not independently verify how much money they had in Brazil.                 
          Respondent determined that International was a likely source of             
          petitioners' deposits.  Petitioners did not give respondent                 
          International's books and records so respondent could not verify            
          the extent to which International was a likely source of income.            
               4.   Whether Respondent Subtracted Nontaxable Sources of               
                    Deposits in Reconstructing Petitioners' Income                    
               Respondent contends that respondent properly reconstructed             
          petitioners' income for 1990 and 1991 using the bank deposits               
          method by subtracting from petitioners' income nontaxable sources           
          of deposits including transfers between bank accounts, expense              
          reimbursements, and offsetting wire transfers.  As discussed                
          below, we conclude that respondent did not subtract all                     
          nontaxable sources of deposits to petitioners' U.S. bank                    
          accounts.                                                                   
               Respondent contends that petitioners have not proven that              
          their bank deposits in 1990 and 1991 were from cash that they had           
          at the end of 1989.  Respondent contends that petitioners kept              



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