- 4 -
petitioner explained that the unexplained bank deposits were due
to gifts made in 1995 by his mother-in-law in the total amount of
$20,000.
Not satisfied with petitioner’s explanation, respondent
issued petitioners a notice of deficiency dated August 9, 2002,
determining a deficiency in Federal income tax of $10,167 and an
accuracy-related penalty under section 6662(a) of $1,728.40 for
the 1995 taxable year. Respondent contends that petitioners
received unreported income of $22,082.25 for 1995, as suggested
by unexplained bank deposits made by them during that year.
Discussion
1. Unreported Income
Gross income includes all income from whatever source
derived. See sec. 61(a). Section 6001 requires all taxpayers to
maintain adequate books and records of income. In the absence of
adequate records, the Commissioner is authorized to reconstruct a
taxpayer’s income by any reasonable method that clearly reflects
the taxpayer’s income. See sec. 446(b); see also Agnellino v.
Commissioner, 302 F.2d 797, 798-799 (3d Cir. 1962), affg. in part
and vacating in part T.C. Memo. 1961-22. One of these methods,
the bank deposits and cash expenditure method, has long been
sanctioned by the courts. See Bacon v. Commissioner, T.C. Memo.
2000-257, affd. without published opinion 275 F.3d 33 (3d Cir.
2001).
Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011