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incurred the expense. Petitioner, therefore, has failed to
establish that the $325 was a deductible expense incurred by
Special O.12
The third issue is the proper amount of gross income
attributable to Special Occasions and Special O for 1992 and
1993. Because Special Occasions and Special O did not maintain
adequate books and records, respondent used the bank deposits
method to reconstruct the income of both entities. The use of
the bank deposits method to reconstruct income is well
established and has been sanctioned by the courts. See DiLeo v.
Commissioner, 96 T.C. 858, 868 (1991), affd. 959 F.2d 16 (2d Cir.
1992); Nicholas v. Commissioner, 70 T.C. 1057, 1064 (1978).
The Commissioner is required to take into account any
nontaxable sources of deposits or deductible expenses of which
the Commissioner is aware. See DiLeo v. Commissioner, supra at
868. The testimony of a taxpayer unsupported by documentary
evidence may be insufficient to cast doubt upon the
12
In Wilson v. Commissioner, T.C. Memo. 1999-141, involving
the 1992 tax year of Marian Wilson, who was the shareholder in
Special O who paid the $325 in question, it was stipulated that
the travel expenses claimed by Special O had been paid from the
personal funds of the shareholders of Special O. In the subject
case, the Court held that Marian Wilson had not established that
such travel expenses had been reimbursed to her, and, therefore,
travel expenses paid for in the manner stipulated were not
deductible by Special O.
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