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Use of the bank deposits method for reconstructing
income is well established. DiLeo v. Commissioner, 96
T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992);
Estate of Mason v. Commissioner, 64 T.C. 651, 656
(1975), affd. 566 F.2d 2 (6th Cir. 1977). Under the
bank deposits method there is a rebuttable presumption
that all funds deposited to a taxpayer's bank account
constitute taxable income. Price v. United States, 335
F.2d 671, 677 (5th Cir. 1964); Hague Estate v.
Commissioner, 132 F.2d 775, 777-778 (2d Cir. 1943),
affg. 45 B.T.A. 104 (1941); DiLeo v. Commissioner,
supra at 868. The Commissioner must take into account
any nontaxable sources of deposits of which she is
aware in determining the portion of the deposits that
represent taxable income, but she is not required to
trace deposits to their source. Petzoldt v.
Commissioner, supra 695-696; Estate of Mason v.
Commissioner, supra at 657.
In the case at hand, respondent used the bank deposits
method to reconstruct petitioner’s income, doing so in very
conservative fashion. In connection with the criminal case
against petitioner, Special Agent Bricker had obtained copies of
petitioner’s bank records. Agent Bricker sent letters to each of
the drawers on the checks deposited to petitioner’s bank account
requesting information regarding (1) the nature of the payment,
and (2) whether the drawers had any records of their dealings
with petitioner. Agent Bricker sent out 685 letters to the
drawers of more than $900,000 in identifiable checks deposited to
petitioner’s bank account in 1988, 1989, and 1990. Agent Bricker
received 322 responses to his letters (a response rate of
approximately 47 percent), 266 of which (approximately 82 percent
of the responses) identified their checks as payments made for
the purchase of computers or computer-related devices.
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