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represent taxable income. The total of all deposits is
determined by the Commissioner for each year in question to
arrive at the taxpayer’s gross income. An adjustment is then
made to eliminate deposits that reflect nonincome items such as
gifts, loans, and transfers between the taxpayer’s various bank
accounts. The Commissioner will also make a further adjustment
for the taxpayer’s ascertainable business expenses, deductions,
and exemptions. See Percifield v. United States, 241 F.2d 225
(9th Cir. 1957).
Where respondent has employed the bank deposits method in
his determination of the deficiencies, the burden of proof rests
with petitioners to show that such determination is erroneous.
See Rule 142(a); Estate of Mason v. Commissioner, supra at 657;
Harper v. Commissioner, 54 T.C. 1121, 1129 (1970). Respondent
need not prove a likely source for the unreported income. See
Estate of Mason v. Commissioner, supra. Nor is he required to
prove that all deposits constitute taxable income. See Gemma v.
Commissioner, 46 T.C. 821, 833 (1966).
The taxpayer has the burden of proving that the bank
deposits came from a nontaxable source. See Rule 142(a); Clayton
v. Commissioner, supra; Estate of Mason v. Commissioner, supra;
Sproul v. Commissioner, T.C. Memo. 1995-207. Additionally, the
taxpayer bears the burden of proof in substantiating claimed
deductions. See Patton v. Commissioner, 799 F.2d 166, 170 (5th
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