Bradley M. Cohen and Kathy A. Cohen - Page 9




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          7491, because petitioners failed to introduce credible evidence             
          of the nontaxable nature of the deposits and petitioners failed             
          to maintain adequate records to support their position.  By using           
          the bank deposits method, respondent has made a prima facie case            
          that petitioners have received income.  In any event, petitioners           
          have stipulated to the amount of the deposits made into the BMC             
          account and have offered no argument as to the nontaxable nature            
          of the amounts.  Petitioners’ argument that BMC was not in                  
          existence is irrelevant to this issue because petitioners                   
          remained in control of the BMC account during 1996.  We therefore           
          conclude that the $59,609.62 represents additional unreported               
          income to petitioners.                                                      
               B.  Unreported Self-Employment Income and Flowthrough                  
          Income From NHIL                                                            
               Respondent asserts that petitioners received $78,791.02 of             
          self-employment income based on unexplained bank deposits made              
          into the Nationwide account and the Cohen account.  Respondent              
          also asserts that petitioners received flowthrough income from              
          NHIL of $210,549.91 based on unexplained deposits of $186,079.54            
          made into the NHIL account, the Green Tree income of $24,180, and           
          NHIL’s taxable income of $290.37 erroneously reported on                    
          Form 1120.  Petitioners have admitted receipt of the Green Tree             
          income and have not shown that the S corporation election made by           
          them for 1996 was not effective.  We focus then on the treatment            







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