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petitioner’s taxable income for 1992, 1993, and 1994 using the
bank deposits method. Respondent eliminated transfers and
nontaxable sources of income from his bank deposits computation.
OPINION
I. Unreported Income
Every individual liable for tax is required to maintain
books and records sufficient to establish the amount of his or
her gross income. Sec. 6001; DiLeo v. Commissioner, 96 T.C. 858,
867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). For the years in
question, we find that petitioner maintained inadequate books and
records for his law practice.
Where a taxpayer fails to maintain or produce adequate books
and records, the Commissioner is authorized to compute the
taxpayer’s taxable income by any method that clearly reflects
income. Sec. 446(b); Holland v. United States, 348 U.S. 121
(1954); Webb v. Commissioner, 394 F.2d 366, 371-372 (5th Cir.
1968), affg. T.C. Memo. 1966-81. The reconstruction of income
need only be reasonable in light of all surrounding facts and
circumstances. Giddio v. Commissioner, 54 T.C. 1530, 1533
(1970). The Commissioner is given latitude in determining which
method of reconstruction to apply when a taxpayer fails to
maintain records. Petzoldt v. Commissioner, 92 T.C. 661, 693
(1989).
Respondent employed the bank deposits method of proof to
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