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D. Respondent’s Reconstruction of Petitioner’s Income
The examination began on April 23, 1997. Alex Malichiwski
(Malichiwski), respondent’s revenue agent, examined petitioner’s
1993 and 1994 returns. He issued summonses to petitioner’s banks
for petitioner’s records. Citibank and Chemical Bank gave
Malichiwski copies of petitioner’s bank statements and checks for
1993, 1994, and 1995.1 Malichiwski reconstructed petitioner’s
income for 1993 and 1994 because petitioner did not have records.
He used a modified bank deposits method in which he assumed that
deposits of less than $1,000 (hereinafter referred to as small
deposits), totaling $12,363 in 1993 and $12,677 in 1994, were
petitioner’s wages from the photo shop. He did not include the
deposit from the reported gambling winnings in 1994 as income in
the modified bank deposits method because petitioner had reported
the $20,046 on her 1994 return.
Malichiwski concluded that 10 of petitioner’s bank deposits
of $1,000 or more in 1993 (totaling $25,500) were unreported
income because petitioner did not establish to his satisfaction
during the examination that those funds were not taxable income
to her. He concluded that, of petitioner’s six bank deposits of
$1,000 or more in 1994 (totaling 11,267.47), deposits of $4,000
1 The banks did not have copies of all of petitioner’s
checks.
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