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As to the $19,640 of unexplained bank deposits raised by the
answer, respondent bears the burden of proof. Rule 142(a).
Section 61 provides that gross income means all income from
whatever source derived. Section 6001 imposes a duty on all
persons liable for any tax to maintain records. It is well
established that where a taxpayer fails to maintain adequate
records, the Commissioner may prove the existence and amount of
unreported income by any method that will clearly reflect the
taxpayer's income. Sec. 446(b); Harper v. Commissioner, 54 T.C.
1121, 1129 (1970); Sindik v. Commissioner, T.C. Memo. 1996-47.
In this case petitioners' return did not clearly reflect the
activity in their bank accounts. Respondent used a bank deposit
analysis to determine the amount of income. Under the bank
deposit analysis, the total of all the deposits is treated as
petitioners' income. Sindik v. Commissioner, supra. Adjustments
are then made to eliminate deposits that reflect nonincome items
such as gifts, loans, transfers between bank accounts, and
redeposits. Id. Respondent determined that $65,090.01 was
deposited in petitioner's three bank accounts. Respondent
alleged that petitioners accounted for $45,450 of the income on
their return. The $45,450 consists of Mrs. Krist's wages, the
locksmith income, the rental income, and the limousine income.
Thus, respondent contends, a rounded amount of $19,640 remains to
be accounted for.
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