Karan M. Hintze - Page 5




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          1992 and 1994, respectively.  Petitioner did not maintain records           
          to support these figures.  After reviewing the deposits which               
          petitioner made to her bank accounts during the years in issue,             
          respondent determined that petitioner received gross income from            
          her business in excess of that which she reported on her return.            
               Each taxpayer is required to maintain adequate records of              
          income.  See sec. 6001.  In the absence of adequate books and               
          records, the Commissioner may reconstruct a taxpayer’s income by            
          any reasonable method.  See sec. 446(b); Harper v. Commissioner,            
          54 T.C. 1121, 1129 (1970).  The bank deposits method is an                  
          accepted method of income reconstruction when a taxpayer has                
          inadequate books and records.  See DiLeo v. Commissioner, 96 T.C.           
          858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992); Parks v.                 
          Commissioner, 94 T.C. 654, 658 (1990).  The bank deposits method            
          assumes that all money deposited into a taxpayer’s bank account             
          during a given period constitutes taxable income, although the              
          Commissioner must take into account any nontaxable source or                
          deductible expense of which he has knowledge.  See Clayton v.               
          Commissioner, 102 T.C. 632, 645-646 (1994); DiLeo v.                        
          Commissioner, supra at 868.  The taxpayer has the burden of                 
          proving that the bank deposits came from a nontaxable source.               
          See Rule 142(a); Clayton v. Commissioner, supra at 645; Estate of           
          Mason v. Commissioner, 64 T.C. 651, 657 (1975), affd. 566 F.2d 2            
          (6th Cir. 1977).                                                            






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