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tablishes that any portion of an underpayment is attributable to
fraud, the entire underpayment is to be treated as attributable
to fraud, except with respect to any portion of such underpayment
which the taxpayer establishes by a preponderance of the evidence
is not attributable to fraud. See sec. 6663(b). In a situation
such as the present case in which the allegations of fraud are
intertwined with unreported and indirectly reconstructed income,
respondent can satisfy the burden of establishing an underpayment
in one of two ways: (1) Where the taxpayer alleges a nontaxable
source for the unreported income reconstructed by respondent, by
disproving that alleged nontaxable source, see Parks v. Com-
missioner, 94 T.C. 654, 661 (1990), or (2) by proving a likely
source of that unreported income, see Parks v. Commissioner,
supra.
The parties stipulated that petitioners made bank deposits
during 1992, 1993, and 1994 totaling $197,097.69, $204,944, and
$288,841, respectively. As part of respondent's alternative
position in the answer, respondent permitted petitioners to
reduce their total bank deposits for 1992, 1993, and 1994 by
$46,644, $49,638, and $122,459, respectively, which were the
amounts of deposits that respondent concluded were attributable
to nontaxable sources.4 Petitioners do not dispute the amounts
4 Under respondent's position in the answer that is based
(continued...)
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