- 14 -
Second, the evidence does not establish that petitioner made
any interest payments to Lawrence with his own funds during the
years at issue. Her testimony implies that the initial scheduled
payments that she received were drawn on CEA's account.
Subsequent interest checks were drawn on petitioner's personal
account, but many of these were returned for insufficient funds.
Petitioner did not prove that any checks payable to Lawrence from
his own account cleared during the years at issue.
Bank Deposits
Section 6001 requires each taxpayer to maintain records
sufficient to establish the amount of his gross income and
deductions. Where a taxpayer fails to keep adequate records, the
Commissioner is authorized by section 446(b) to reconstruct his
income by any reasonable method. Petzoldt v. Commissioner, 92
T.C. 661, 687, 693 (1989). Use of the bank deposits method for
reconstructing income is well established. DiLeo v.
Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir.
1992); Estate of Mason v. Commissioner, 64 T.C. 651, 656 (1975),
affd. 566 F.2d 2 (6th Cir. 1977). Under the bank deposits method
there is a rebuttable presumption that all funds deposited to a
taxpayer's bank account constitute taxable income. Price v.
United States, 335 F.2d 671, 677 (5th Cir. 1964); Hague Estate v.
Commissioner, 132 F.2d 775, 777-778 (2d Cir. 1943), affg. 45
B.T.A. 104 (1941); DiLeo v. Commissioner, supra at 868. The
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