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depositing part of it into bank accounts and by making cash
expenditures of the other part. Williams v. Commissioner, T.C.
Memo. 2003-216.
The income reconstruction need not be exact, so long as it
is reasonable and substantially correct. Petzoldt v.
Commissioner, supra at 693; Schroeder v. Commissioner, 40 T.C.
30, 33 (1963). The Commissioner is not required to show that all
deposits constitute taxable income. See Estate of Mason v.
Commissioner, 64 T.C. 651, 657 (1975), affd. 566 F.2d 2 (6th Cir.
1977); Gemma v. Commissioner, 46 T.C. 821, 833 (1966).
Consequently, in analyzing a bank deposits case, deposits are
considered income when there is no evidence that they represent
anything other than income. See Price v. United States, 335 F.2d
671, 677 (5th Cir. 1964); United States v. Doyle, 234 F.2d 788,
793 (7th Cir. 1956).
Respondent’s bank deposits and cash expenditures analysis
reflects that petitioner had unreported income during 1996 and
1997. The bank deposit analysis was performed by first totaling
all of the deposits made to petitioner’s bank account.
Respondent then reduced the total amount of deposits by known
nontaxable sources8 and the income amounts reported on
petitioner’s tax returns to arrive at petitioner’s total net bank
8 Nontaxable sources included, for example, transfers from
other accounts and loan proceeds.
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