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Webb v. Commissioner, 394 F.2d 366, 372 (5th Cir. 1968), affg.
T.C. Memo. 1966-81.
Taxpayers are required to maintain records, including the
maintaining of documentation of transactions, expenses, etc. See
sec. 6001. The bank deposits method has been approved as an
indirect method with which to reconstruct income. United States
v. Carter, 721 F.2d 1514, 1538 (11th Cir. 1984) (citing United
States v. Boulet, 577 F.2d 1165 (5th Cir. 1978)).
In Clayton v. Commissioner, 102 T.C. 632, 645 (1994), we
described the attributes and use of the bank deposits method as
follows:
Bank deposits are prima facie evidence of income,
Tokarski v. Commissioner, 87 T.C. 74, 77 (1986), and
the taxpayer has the burden of showing that the
determination is incorrect, Estate of Mason v.
Commissioner, 64 T.C. 651, 657 (1975), affd. 566 F.2d 2
(6th Cir. 1977). In such case the Commissioner is not
required to show a likely source of income, id.,
although here she has done so. The bank deposits
method assumes that all money deposited in a taxpayer's
bank account during a given period constitutes taxable
income, but the Government must take into account any
nontaxable source or deductible expense of which it has
knowledge. DiLeo v. Commissioner, 96 T.C. at 868.
Here, petitioners do not contend that the deposits were not
made or that respondent did not allow for nontaxable sources or
for additional deductions. Instead, petitioners argue that their
method more accurately reflects income. On brief, petitioners
generally describe their argument as follows:
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