- 32 -
affg. in part and revg. in part T.C. Memo. 1964-302; Halle v.
Commissioner, 175 F.2d 500, 502-503 (2d Cir. 1949), affg. 7 T.C.
245 (1946).
Respondent chose to apply the bank deposits method in these
cases because petitioners failed to maintain adequate books and
records for the years in issue. A bank deposit is prima facie
evidence of income. Tokarski v. Commissioner, 87 T.C. 74, 77
(1986); see also Clayton v. Commissioner, 102 T.C. 632, 645
(1994); DiLeo v. Commissioner, supra at 868; Estate of Mason v.
Commissioner, supra at 657. When a taxpayer keeps no books or
records and has large bank deposits, the Commissioner is not
acting arbitrarily or capriciously by resorting to the bank
deposits method. DiLeo v. Commissioner, supra at 867. The bank
deposits method of reconstruction assumes that all of the money
deposited into a taxpayer’s account is taxable income unless the
taxpayer can show that the deposits are not taxable. See id. at
868; see also Price v. United States, 335 F.2d 671, 677 (5th Cir.
1964). 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. See Price v.
United States, supra at 677; Tokarski v. Commissioner, supra at
77.
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