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In the absence of taxpayer records sufficient to establish
the amount of income, the Commissioner may reconstruct income
under any reasonable method. Meneguzzo v. Commissioner, 43 T.C.
824, 831 (1965). A bank deposits analysis is an acceptable
method of reconstruction. Harper v. Commissioner, 54 T.C. 1121
(1970). On this record, on the basis of a preponderance of the
evidence, we conclude respondent’s treatment of the deposits into
the Floors Trust checking account as equal to the cash gross
receipts of the trust’s business activities is accurate and
accordingly find that Floors Trust had cash gross receipts of
$93,831 in 1998.
As the cash gross receipts ($93,831) and bartering income
($16,734) together exceed Floors Trusts’s reported gross receipts
of $103,657 by $6,908, we sustain respondent’s determination that
11(...continued)
$93,831 (rounded from $93,831.15). However, this $5,985.18
discrepancy is readily explained. First, petitioners excluded a
$1,000 deposit made on July 7, 1998, on the basis of their claim
(rejected above) that this amount was a loan to the business from
Jody. Second, with respect to the bank statement covering Dec.
5, 1997, through Jan. 7, 1998, petitioners erroneously took the
sum of the running balances posted in 1998 ($3,613.82) rather
that the deposits posted in 1998 ($1,174), which had the effect
of overstating deposits in that period by $2,439.82. Finally,
petitioners erroneously omitted the deposits posted in the
statement covering Feb. 6 through Mar. 5, 1998, resulting in an
understatement of deposits of $7,425. When petitioners’
erroneous understatements and overstatements of deposits are
netted, the result is an understatement of deposits of $4,985.18
which, when added to the $1,000 deposit excluded as a loan,
equals the $5,985.18 discrepancy in the parties’ respective
claims regarding the amount of deposits in 1998.
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