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gain from a July 1, 1991, sale of a photo with zero basis for
$5,000, and a December 4, 1991, sale of photos acquired on
December 1, 1991, with zero basis for $13,000.
On their 1992 return, petitioners reported total income of
$9,677.75. They reported $4,624 of Form 1099-MISC income from
Topps Co., $5,032.32 from Barbara's Form W-2 income from
teaching, and $21.43 of interest income.
I. Reconstruction of Income
An internal revenue agent of the Internal Revenue Service
audited petitioners' 1991, 1992, and 1993 returns. The agent
reconstructed petitioners' income using the bank deposits method.
1. 1991 Income
a. Ameritrust Account
In 1991, gross deposits of $404,747.80 were deposited into
the Ameritrust account. Of that amount, $15,295.09 was
attributable to sales paid by credit card at Davey's Cards in
exchange for which Morova received $15,295.09 of supplies from
Raymond. Additionally, there were $6,058.82 in miscellaneous
bank charges, lease payments on the credit card machine used by
Davey's Card, and charges for deposited items returned for
insufficient funds.
Checks written and paid on the Ameritrust account for which
respondent allowed a deduction for purchases made during 1991
were as follows:
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