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all surrounding facts and circumstances. See Giddio v.
Commissioner, 54 T.C. 1530, 1533 (1970); Schroeder v.
Commissioner, 40 T.C. 30, 33 (1963).
Respondent determined that petitioners understated their
income for 1988 by $515,993–-the total amount of cash and
cashier’s checks petitioners received in their numerous bank
transactions during the year. In arriving at this determination,
respondent used the “specific-item” method to reconstruct
petitioners’ income, relying on evidence of petitioners’ receipt
of specific items of reportable income that did not appear on
their income tax return. See United States v. Horton, 526 F.2d
884, 886 (5th Cir. 1976); Estate of Beck v. Commissioner, 56 T.C.
297, 353 (1971); Seidenfeld v. Commissioner, T.C. Memo. 1995-62.
At trial, respondent produced clear and convincing evidence
demonstrating that petitioners received $515,993. Respondent
presented the checks, bearing petitioners’ endorsements, that
petitioners either deposited or cashed in the transactions at
issue. He also introduced the cash-out tickets from these
transactions that bore petitioners’ names. Finally, respondent
produced testimony from numerous Fidelity bank tellers and
employees that it was Fidelity’s policy in 1988 to require
customers to endorse checks that they presented to be cashed and
that it was Fidelity’s policy to give the cash to the last person
endorsing the check. They also testified that when they handed
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