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The Commissioner need not show a likely source of the income
when using the bank deposits method, but the Commissioner must
take into account any nontaxable items or deductible expenses of
which the Commissioner has knowledge. Price v. United States,
supra at 677; Tokarski v. Commissioner, supra at 77. If the
taxpayer contends that the Commissioner’s use of the bank
deposits method is unfair or inaccurate, the burden is on the
taxpayer to show the unfairness or inaccuracy.4 Price v. United
States, supra at 677; see also Rule 142(a); Welch v. Helvering,
290 U.S. 111 (1933).
Given that petitioner failed to file Federal income tax
returns for the subject years, and that he refused to cooperate
with the examination officer in the audit of his Federal income
tax liability for those years, we consider it proper for
respondent to reconstruct petitioner’s income for the subject
years using the bank deposits method. Revenue Agent Dugger
adequately explained how petitioner’s income was computed.
Petitioner had an opportunity to show error in respondent’s
computations, e.g., that some or all of the deposits represented
4Sec. 7491, which is effective for court proceedings arising
in connection with examinations commencing after July 22, 1998,
shifts the burden of proof to the Commissioner in certain
circumstances and places on the Commissioner the burden of
production with respect to penalties and additions to tax. Sec.
7491 is inapplicable in this case because the examination of
petitioner’s 1991-97 tax years commenced in June 1998.
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