- 7 -
petitioner’s 1992 income tax return, Agent Harkins performed a
bank deposits analysis, in which he determined that specific
deposits reflected in petitioner’s financial records had not been
reported in 1992 gross receipts on the corporate return. In
addition, respondent performed bank deposits analyses for 1993
and 1994 generally reflecting that gross receipts had been either
underreported or overreported.
In cases where taxpayers have not maintained business
records or where their business records are inadequate, the
Commissioner is authorized to reconstruct income by any method
that, in the Commissioner’s opinion, clearly reflects income.
See sec. 446(b); Parks v. Commissioner, 94 T.C. 654, 658 (1990).
The Commissioner’s method need not be exact but must be
reasonable. See Holland v. United States, 348 U.S. 121 (1954).
The bank deposits method for computing unreported income has
long been sanctioned by the courts. See Factor v. Commissioner,
281 F.2d 100, 116 (9th Cir. 1960), affg. T.C. Memo. 1958-94;
DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16
(2d Cir. 1992). Bank deposits are prima facie evidence of
income. See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).
Where the taxpayer has failed to maintain adequate records as to
the amount and source of his or her income and the Commissioner
has determined that the deposits are income, the taxpayer must
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011