Yu-Yang Wu - Page 9




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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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