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In the absence of adequate record-keeping by petitioners,
which is mandated by section 6001, the Commissioner is authorized
to reconstruct petitioners’ income by any reasonable method that
clearly reflects income. See, e.g., sec. 446(b); Holland v.
United States, 348 U.S. 121, 130-132 (1954); Cracchiola v.
Commissioner, 643 F.2d 1383, 1385 (9th Cir. 1981), affg. per
curiam T.C. Memo. 1979-3. One of the acceptable methods of
reconstructing income is the bank deposits method. Clayton v.
Commissioner, 102 T.C. 632, 645 (1994); DiLeo v. Commissioner, 96
T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). Bank
deposits are considered prima facie evidence of income, and
respondent need not prove a likely source of that income.
Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Estate of Mason
v. Commissioner, 64 T.C. 651, 656-657 (1975), affd. 566 F.2d 2
(6th Cir. 1977). Under the bank deposits method, it is assumed
that all money deposited in petitioners’ bank accounts during the
period in question, minus any money coming from a nontaxable
source and deductible expenses known by the Commissioner,
constitutes taxable income. Clayton v. Commissioner, supra at
645-646.
Petitioners do not dispute the existence of the excess
amount in their bank accounts as calculated by respondent, and
they fail to establish why this amount should not be taxed.
Petitioners assert that the excess amount represents the proceeds
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