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OPINION
I. Unreported Income From Bank Deposits
It is a taxpayer’s responsibility to maintain adequate books
and records sufficient to establish his or her income. See sec.
6001; DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd. 959
F.2d 16 (2d Cir. 1992). When a taxpayer fails to maintain these
records, respondent may determine income under the bank deposits
method. Id. A bank deposit is prima facie evidence of income.
Id. at 868; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). The
bank deposits method of reconstruction assumes that all money
deposited into a taxpayer’s account is taxable income, unless the
taxpayer can show a nontaxable source for the income. See DiLeo
v. Commissioner, supra at 868.
A. Income From BMC
Based on deposits made into the BMC account, respondent
determined in the notice of deficiency that petitioners had
unreported flowthrough income from the S corporation in the
amount of $59,609.62. Petitioners’ sole argument on this issue
is that BMC ceased to be in existence prior to 1996 because
petitioner submitted an “Out of Existence/Withdrawal Affidavit”
to the Commonwealth of Pennsylvania.
Petitioners bear the burden of showing that the deposits
made into an account that they control represent nontaxable
income. The burden does not shift to respondent under section
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Last modified: May 25, 2011