David J. Edwards - Page 18




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               Once the Commissioner makes a prima facie case of unreported           
          income using the bank deposits method and has made a                        
          determination in the notice of deficiency, the taxpayer bears the           
          burden of proving that the deposits identified by the                       
          Commissioner as unreported income do not, in fact, represent                
          unreported income.  Hardy v. Commissioner, 181 F.3d 1002, 1004-             
          1005 (9th Cir. 1999) (if the Commissioner introduces some                   
          evidence that the taxpayer received unreported income, the burden           
          shifts to the taxpayer to show by a preponderance of the evidence           
          that the deficiency was arbitrary or erroneous), affg. T.C. Memo.           
          1997-97; Clayton v. Commissioner, 102 T.C. 632 (1994); DiLeo v.             
          Commissioner, 96 T.C. 858, 869 (1991) (“petitioners, not the                
          Government, bear the burden of proving that respondent’s                    
          determination of underreported income, computed using the bank              
          deposits method of reconstructing income, is incorrect”), affd.             
          959 F.2d 16 (2d Cir. 1992); Beck v. Commissioner, T.C. Memo.                
          2001-270 (“Bank deposits are prima facie evidence of income.”);4            

               4Petitioner moved at trial that respondent should bear the             
          burden of proof under sec. 7491(a), under which the burden of               
          proof is placed on respondent as to any factual issue for which             
          petitioner offers credible evidence that is relevant to his                 
          liability for the income tax deficiencies if certain conditions             
          have been satisfied.  According to the legislative history of               
          sec. 7491:  “The taxpayer has the burden of proving that it meets           
          each of these conditions, because they are necessary                        
          prerequisites to establishing that the burden of proof is on the            
          Secretary.”  S. Rept. 105-174, at 45 (1998), 1998-3 C.B. 537,               
          581.  Among other conditions, petitioner must show that he “has             
          maintained all records required under this title and has                    
                                                             (continued...)           





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