- 10 -
records.” Palmer v. IRS, 116 F.3d at 1312. Petitioner must
report business income from Bicycle Sport of $33,916 for the 1986
taxable year.
B. 1988, 1990, and 1992
For the 1988, 1990, and 1992 taxable years, the Schedules C
submitted by petitioner reflected gross sales from Bicycle Sport
of $584,120, $731,881, and $617,273, respectively. After offsets
and deductions, petitioner reported a net loss of $78,316 in
1988, a net profit of $15,380 in 1990, and a net loss of $7,105
in 1992. Petitioner has at no time provided books and records to
document the calculation of these amounts.
With respect to these years, respondent was able to obtain
the financial records necessary to perform a bank deposits
analysis. The use of the bank deposits method for computing
unreported income has long been sanctioned by the courts. Factor
v. Commissioner, 281 F.2d 100, 116 (9th Cir. 1960), affg. T.C.
Memo. 1958-94; Clayton v. Commissioner, 102 T.C. 632, 645 (1994);
DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16
(2d Cir. 1992). Underlying this method is the principle that
bank deposits constitute prima facie evidence of income. Clayton
v. Commissioner, supra at 645; DiLeo v. Commissioner, supra at
868; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). A bank
deposits analysis must generally encompass the following: (1) A
totaling of bank deposits; (2) the elimination from such total of
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