- 5 -
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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