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petitioners’ children and redeposited in petitioners’ account are
from nontaxable sources.
Petitioners do not explain why they are not taxable on the
two checks from Edgar. Both checks were written by Edgar in
November 1998 and were not included in the $135,422 deposited in
O’Leary’s account or reported on petitioners’ amended 1998
return. Petitioner’s testimony that the $7,500 check from Edgar
was a loan is unconvincing. He testified that he did not intend
to repay Edgar because he believed that she had stolen money from
him. Petitioners did not prove that the checks from Edgar
($1,800) or the retirement account check ($7,500) were from a
nontaxable source.
We conclude that petitioners had unreported income of $6,264
($572,284 deposited - $55,971 nontaxable deposits allowed by
respondent - $6,500 additional nontaxable deposits - $503,549
reported on return) for 1998 and $2,735 for 1999.
C. Whether Petitioners Are Liable for Increased Deficiencies
for the Years in Issue
1. Burden of Proof
The Commissioner has the burden of proving increased
deficiencies and penalties pleaded in the answer. Rule 142(a).
Thus, respondent bears the burden of proving that petitioners are
liable for increased deficiencies and penalties due to their
failure to report specific items of business income totaling
$67,437 for 1995 and $87,942.76 for 1998 representing client
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