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revenue agent totaled all deposits from known bank accounts.
Second, to arrive at gross income, the revenue agent totaled all
of petitioners’ known cash expenditures and added that number to
the total known bank deposits. Third, the revenue agent
subtracted from the total bank deposits and cash expenditures
the amount of income that petitioners reported on their Federal
income tax returns. Fourth and finally, the revenue agent
reconciled the totals so derived to adjust for nonincome items,
such as Lesely’s disability compensation.
Based on this analysis, respondent determined in the notice
that petitioners received unreported taxable income during the
subject years in the following amounts:
Unreported
Year Taxable Income
1987 $52,034
1988 49,083
1989 15,744
1990 37,320
OPINION
1. Unreported Income
Taxpayers are required to maintain records sufficient to
show whether they are liable for Federal income taxes. See sec.
6001. If a taxpayer fails to keep records, the Commissioner may
reconstruct the taxpayer’s income. See sec. 446(b); Holland v.
United States, 348 U.S. 121, 130-132 (1954); Parks v.
Commissioner, 94 T.C. 654, 658 (1990). Petitioners made
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