- 87 -
Even if we were to assume that the deposit of $59,000 is
traceable to the $70,000 received from Washington International,
petitioner has not established that this is a nontaxable source
of income. Petitioner relies on the fact that respondent failed
to determine in the notice of deficiency that this amount
represented unreported income. However, this alone does not
establish an income source to be nontaxable. Respondent may have
had a wide range of valid reasons for not targeting this
particular item for an increased deficiency, including lack of
information and records. Those reasons do not indicate that the
source is a nontaxable one, especially given the particular
circumstances of this case where moneys are being moved around
through a variety of entities, individuals, transactions, and
trust accounts.
Petitioner claims that the $70,000 check from Washington
International was a loan, because “The evidence as to Washington
International was that it loaned money secured by real estate
(TR-412, 453).” At trial, John Kelly testified with respect to
petitioner’s Washington International account, i.e., the Cayman
Island account, that “it was basically a loan account. He would
pledge property as collateral, and they would advance him funds
against his property. And subsequently he would repay the loan
either from other funds or through sales of the property.” Mr.
Kelly also testified that “Mr. Medlin would transfer title to
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