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Because petitioner proved that respondent’s reliance on the
1987 and 1989 financial statements under the circumstances
involved in this case was unreasonable and resulted in
substantially distorted income adjustments, we conclude that the
adjustments to petitioner’s Schedule C income as determined by
respondent in the notices of deficiency were arbitrary and
excessive. Therefore, the burden of producing credible evidence
showing that respondent’s revised adjustments to petitioner’s
Schedule C income in each of the years 1987 and 1989 were
warranted shifted to respondent. Helvering v. Taylor, supra at
514-515; Commissioner v. Riss, 374 F.2d 161, 166 (8th Cir. 1967),
affg. in part, revg. in part and remanding T.C. Memo. 1964-190.
Respondent contends that, even if the burden of production
shifted to respondent regarding the income adjustments in the
notice of deficiency, his revised income adjustments for each of
the years 1987 and 1989 are supported by the bank deposits
analyses respondent introduced into evidence. According to
respondent, those analyses prove that petitioner deposited into
her bank accounts substantially more money during 1987 and 1989
than she reported as gross receipts on her Schedules C for those
years.
The bank deposits method has long been recognized as an
acceptable indirect method of proving a taxpayer’s understatement
of income. See Gleckman v. United States, 80 F.2d 394 (8th Cir.
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