- 10 -
(1991), affd. 959 F.2d 16 (2d Cir. 1992). Of course, when
utilizing this method, all nontaxable sources of deposits must be
taken into account. See id. Under the bank deposits method:
(1) Bank deposits are totaled; (2) nonincome deposits,
redeposits, or transfers are eliminated; (3) an excess of
deposits, as adjusted, over reported income is considered to be
unreported income; (4) cash expenditures that did not come from
deposited funds or nontaxable sources are added to the amount of
underreported income; and (5) deductible expenses not accounted
for in the taxpayer’s return are allowed.11
Using the bank deposit method, respondent determined in the
notice of deficiency that petitioners understated their income
for the years 1988 through 1991 in the following amounts:
11988 21989 31990 41991
$362,461 $226,693 $500,851 $236,417
1 See appendix D for details of computations.
2 See appendix E for details of computations.
3 See appendix F for details of computations.
4 See appendix G for details of computations.
The parties have stipulated that if a bank deposit analysis
is to be used, then the following adjustments must be made to
respondent’s bank deposit analysis in the notice of deficiency:12
11Petitioners have not claimed deductions in addition to
what respondent has allowed.
12See appendix H for details of these adjustments.
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