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take into account any nontaxable source or deductible expense of
which the Commissioner has knowledge. Id. at 645-646.
We agree that petitioner’s records were inadequate to
substantiate all of her income and deductions. We note that the
records petitioner produced to the Court are voluminous but
disorganized. Petitioner commingled the records of expenses
claimed on her return with the records of expenses claimed on the
return of Sams, Inc. While we conclude generally that
respondent’s use of the bank deposit methodology was reasonable,
we now consider whether each separate deposit into the account
was gross income to petitioner because it appears that respondent
has not taken into consideration whether each item is from a
nontaxable source or a deductible expense.
Deposits made into the account in 1996 total $99,381. Of
the deposits, returned checks account for $3,375 of this amount.
The returned checks are not includable in petitioner’s gross
income.
Deposits of $14,700, as reflected in deposit slips, are
withdrawals from petitioner’s home equity line of credit. These
withdrawals are loans and, therefore, are not includable in
petitioner’s gross income.
Petitioner provided credible evidence that the deposit of
$3,881 is a reimbursement of engineering expenses. Therefore,
the reimbursement is not includable in petitioner’s gross income.
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