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of facts was deemed established under a Rule 91(f) motion, and
accordingly we have based most of our fact findings on these
established facts. In addition to this, respondent reconstructed
petitioners’ income from a bank deposit analysis. This analysis
was made from petitioners’ bank accounts, Forms 1040, California
sales tax returns, financial statements relating to the Bank of
America loan application, and other materials provided by
petitioners. This reconstruction resulted in the following net
taxable deposits:
Account Total Deposit Non-Taxable Net Taxable
Amount Deposit
Wells Fargo $215,586 $192.00 $215,394.00
Bank of
America (I) 298,220 -0- 298,220.00
Bank of
America (II) 182,345 5,358.00 176,987.00
Bank of
America (III) 30,034 20,545.78 9,488.22
Security
Pacific (I) 4,744 -0- 4,744.00
Security
Pacific (II) 41,616 8,500.00 33,116.00
Net taxable deposit $737,949.22
Based on the reconstruction, we hold that respondent has shown
petitioners are liable for the increased deficiency.
We now consider whether respondent has shown that
petitioners’ understatement of income was fraudulent. Fraud must
be shown by clear and convincing evidence. Section 6663 provides
that if any part of an underpayment of tax is due to fraud, an
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