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Bank deposits are prima facie evidence of income. Clayton
v. Commissioner, 102 T.C. 632, 645 (1994). When the Commissioner
uses the bank deposits method of analysis to reconstruct a
taxpayer’s income, this method assumes that all money deposited
in a taxpayer’s bank account during a given period constitutes
income to the taxpayer. The Commissioner must take into account
any nontaxable source or deductible expense of which he has
knowledge. Id. at 645-646. The taxpayer nonetheless has the
burden of showing that the determination is incorrect.2 Id. at
645.
Petitioners contend that unexplained bank deposits of
$22,082.25 do not constitute income in that such amount was
attributable to a cash hoard of lifetime earnings that they
periodically “pulled from the ground and deposited * * * in the
bank.” Petitioner testified that he did not particularly like or
trust banks, citing his parents’ experience “during the
Depression days”, when “they lost money in the bank”.
Petitioner further testified: “I was a little leery of the IRS,
so when I was asked some questions about did you have money at
2 Sec. 7491, regarding the shifting of the burden of proof,
is generally effective for court proceedings arising in
connection with examinations commencing after July 22, 1998, the
date of enactment of the Internal Revenue Service Restructuring
and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat.
726. The examination of petitioners’ 1995 return commenced in
1997. Accordingly, sec. 7491 does not apply in the present case.
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Last modified: May 25, 2011