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Because of the inadequacy of petitioners’ records and
accounting practices, respondent reconstructed petitioners’
income using an indirect method. Using the bank deposits and
cash expenditures method, respondent determined that petitioner’s
unreported income for 1991 was as follows:2
Bank Deposit and Expenditures Reconstruction for 1991
Bank Deposit Summary
Acct. no. 162-14996-– $2,066,381
bus. deposit acct.
Acct. no. 161-17636–- 625,700
bus. operating acct.
Acct. no. 166-67322–- 4,600
personal checking acct.
Total gross bank deposits 2,696,681
Add
Personal cash expenditures $16,200
Business cash expenditures 149,602
Subtotal 2,862,483
Subtract
Checks written to cash:
Deposited into operating account $625,700
Amount of checks not deposited 1,420,200
Subtotal 2,045,900
($2,045,900)
Nontaxable income (1,000)
Business gross receipts 815,583
Per audit $815,583
Per return 591,910
Unreported income 223,673
2 All of the amounts used by respondent in the bank deposits
reconstruction for 1991 and 1992 are supported by facts in the
record of this case.
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