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OPINION
Issue 1. Unreported Income
Utilizing the bank deposits method of income reconstruction,
respondent determined that petitioners had unreported income of
$42,390 and $99,163 for 1991 and 1992, respectively. Petitioners
contend that some of the deposits constituted loans or other
nontaxable items. In particular, they assert that the amounts
received from Mr. Rodriguez in 1991 and 1992 as principal
payments on the sale of their Puerto Rico house were nontaxable
items. They also assert that the amounts they received from Mr.
Alvarado and Mr. Luna were loans which were not income subject to
tax under section 61(a).
Under section 6001, a taxpayer is required to maintain
adequate records of taxable income. In the absence of adequate
books and records, the Commissioner may reconstruct a taxpayer's
income by any reasonable method that clearly reflects income.
Sec. 446(b); Holland v. United States, 348 U.S. 121, 130-132
(1954); Harper v. Commissioner, 54 T.C. 1121, 1129 (1970). In
this case respondent used the bank deposits method to reconstruct
petitioners' income and to determine the amount of unreported
income for 1991 and 1992. The bank deposits method is based on
the principle that a bank deposit is prima facie evidence of
income. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). This
Court has repeatedly accepted this method of income
reconstruction when a taxpayer has inadequate books and records
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Last modified: May 25, 2011