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petitioners contend that respondent made a computational error in
applying the bank deposits method for 1988 in that, in determin-
ing the unreported gross receipts of Design Consultants under
that method, respondent failed to reduce the bank deposits that
respondent determined were Design Consultants' gross receipts for
that year by the $49,525 of 1988 White Star compensation that
petitioners reported in their 1988 Schedule C. We agree that
respondent made a computational error in applying the bank
deposits method to determine the amount of Design Consultants'
unreported gross receipts for 1988.
Respondent's determinations in the notice of Design Consul-
tants' unreported gross receipts were based on the bank deposits
method analysis conducted by Mr. Kaply. As is reflected in the
1988 explanation, respondent determined the total amount that
petitioners deposited into their bank accounts for that year and
the portion of those deposits that constituted gross receipts of
Design Consultants. In determining the portion of petitioners'
total bank deposits for 1988 that constituted gross receipts of
Design Consultants, respondent reduced the total amount of
petitioners' bank deposits that respondent determined for that
year by what respondent determined to be petitioners' deposits
from nontaxable sources, transfers that petitioners made between
their bank accounts, the total amount of petitioners' rental
income, and "Wages" consisting of the $49,525 of 1988 White Star
compensation. Respondent determined that the balance of peti-
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