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OPINION
Although we consider several issues in this case, the two
primary issues involve the reconstruction of petitioners’ income
for 1991 and 1992 and whether any part of the 1991 underpayment
of tax is attributable to fraud.4 The main thrust of
petitioners’ attack focuses on respondent’s use of a bank
deposits analysis to reconstruct petitioners’ income.
Taxpayers are required to maintain records sufficient to
show whether they are liable for Federal income taxes. See sec.
6001; DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd. 959
F.2d 16 (2d Cir. 1992). 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).
The records petitioner maintained for purposes of reporting
the income and deductions of Gene’s were inadequate. Petitioners
do not argue that the books and records were accurate or
adequate.5 Petitioner admitted that he understated the gross
4 In a Dec. 21, 2000, order, respondent’s motion for partial
summary judgment was granted, and it was held that “petitioner
Charles Y. Choi is estopped from denying that he is liable for a
fraud penalty, under section 6663, I.R.C., to the extent that
there is any deficiency finally determined to which a fraud
penalty would be applicable for the 1992 taxable year.”
5 Petitioners have attempted to discredit respondent’s bank
deposits reconstruction of income by offering their own
reconstruction using the percentage markup method. The
(continued...)
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