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Respondent can satisfy * * * [the] burden of proving
the first prong of the fraud test, i.e., an underpayment,
when the allegations of fraud are intertwined with
unreported and indirectly reconstructed income in one of two
ways. Parks v. Commissioner, 94 T.C. at 661. Respondent
may prove an underpayment by proving a likely source of the
unreported income. Holland v. United States, 348 U.S. 121
(1954); Parks v. Commissioner, supra at 661; Nicholas v.
Commissioner, 70 T.C. * * * [1057,] 1066 [(1978)].
Alternatively, where the taxpayer alleges a nontaxable
source, respondent may satisfy * * * [the] burden by
disproving the nontaxable source so alleged. United States
v. Massei, 335 U.S. 595 (1958); Parks v. Commissioner, supra
at 661. [DiLeo v. Commissioner, 96 T.C. at 873.]
In the notices of deficiency, respondent determined that, in
essence, every element of each year’s underpayment was due to
fraud. On brief, respondent’s fraud contentions focus entirely
on the unreported Schedule C receipts.
We consider the elements of the bank deposit analysis (supra
tables 7 and 8), in order to determine whether, as to each year
in issue, respondent has shown by clear and convincing evidence
that there was unreported Schedule C income and that this
produced an underpayment of tax.
(1) Total Listed Accounts Deposits
The parties stipulated that the total bank deposits were
$130,352 in 1994 and $215,898 in 1995.
(2) Nontaxable Transfers
The parties stipulated that the nontaxable transfers were
$12,142 in 1994 and not less than $35,275 in 1995.24
24 Of this 1995 total, $29,275 was stipulated before trial,
(continued...)
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