- 18 -
take into account any non-taxable source or deductible expense of
which it has knowledge.” Id. Furthermore, “The fact that the
Commissioner was not completely correct does not invalidate the
method employed.” DiLeo v. Commissioner, supra at 868.
Respondent determined an increase in petitioners’ taxable
income by analyzing funds deposited into two bank accounts.
First, respondent analyzed deposits made in 1997 into Mr.
Sowards’ law firm “operating” bank account. Secondly, respondent
analyzed the deposits made into the WPA bank account for all
the years at issue.
(a) Unreported Income - Law Firm Account
On their 1997 Federal tax return, petitioners reported gross
receipts of $23,575 from Mr. Sowards’s law practice. On the
basis of deposits made into Mr. Sowards’s law firm operating bank
account, respondent determined that petitioners had additional
income from this business of $7,725.
At trial, Revenue Agent Anoush Mahallati (Agent Mahallati)
explained that in reconstructing petitioners’ income, she took
into account all obvious and known nontaxable items. See Price
v. United States, supra at 671. On brief,20 Mr. Sowards argues
that respondent failed to account for several nontaxable items.
Respondent counters and explains that, as his calculation
demonstrates, all but one of the contested items were treated as
20Petitioners failed to question Agent Mahallati.
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