-6-
applied towards petitioners’ daughter’s college tuition for the
fall semester.
OPINION
Respondent argues that his use of the bank deposits method
is a “prima facie case” that requires that petitioners prove that
the six deposits are not unreported income. Respondent asserts
that the revenue agent who conducted the audit “determined based
on his experience that petitioners’ income in 1995 was diverted
to an offshore bank account and that the funds were moved to the
McDermott’s [sic] parents’ account in Canada and then came back
as alleged gifts.” Respondent asserts that the funds given to
petitioners by Ms. McDermott’s mother also were determined to be
unreported income because of the involvement of Mr. McDermott’s
father with offshore accounts.
Petitioners argue that each of the six deposits has a
nontaxable source. Petitioners assert that the $3,165 deposit
was a payment to Mr. McDermott from Omega (consisting of $165 for
a petty cash expense, $1,000 as partial reimbursement for
out-of-pocket expenses, and $2,000 as an advance contract payment
that Mr. McDermott included in the $12,000 that he recognized as
income for 1995). They assert that the first $3,000 deposit was
wired to them from Ms. McDermott’s mother as a Christmas gift.
They assert that the other two $3,000 deposits were given to them
by Mr. McDermott’s father to pay for his extended stay at their
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