- 21 -
these circumstances, respondent might well have included in the
deficiency determination14 all the unexplained deposits and
imposed on petitioner the burden of showing that the deposits
were not unreported income.15
In view of the conservative approach taken by respondent, we
have no hesitation in sustaining respondent’s deficiency
determinations, as adjusted to reflect respondent’s concession
for 1990.
Issue 2. Petitioner’s Liability for Fraud Addition to Tax and
Penalties
For 1988, the civil fraud addition was set forth in section
6653(b). It was moved in 1989, with some minor clarifying
13(...continued)
deposits.
14If the Commissioner does not include unexplained deposits
as unreported income in his deficiency determination, he may
still raise the issue by answer, or with leave of court by
amendment to answer. The Commissioner initially bears the burden
of proof in respect of new matters asserted in the answer, Rule
142(a)(1), but that burden is satisfied if the Commissioner
establishes the existence of bank deposits and a potential
taxable source, and the taxpayer fails to offer credible evidence
of a nontaxable source, see Hardy v. Commissioner, 181 F.3d 1002
(9th Cir. 1999), affg. T.C. Memo. 1997-97.
15Petitioner stated in his pretrial memorandum: “my CPA and
attorney told me that I am very unlucky”. Although petitioner
might consider himself unlucky because his returns were selected
for examination in the “audit lottery”, petitioner is very
fortunate that respondent did not include in his deficiency
determination, or in his answer: (1) The remaining unexplained
deposits, (2) estimates, using statistical methods, of other
unreported cash receipts, or (3) amounts paid by the corporation
to petitioner, as constructive dividends.
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