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In August of 2003, Revenue Agent Fabian A. Gomez commenced
an examination of petitioners’ 2001 and 2002 tax returns.
Petitioners were unable to produce any business records or
substantiating documents, and, therefore, Agent Gomez used the
bank statements to reconstruct petitioners’ income. Agent Gomez
determined petitioners’ gross receipts for the years in issue by
subtracting the deposits that he was able to identify as
nontaxable, such as loan proceeds and transfers from other bank
accounts maintained by petitioners (transfers), from the
aggregate deposits for each year. Petitioners were given the
opportunity to but did not identify on the bank statements the
business expenses for which they claimed deductions. Agent
Gomez, therefore, relied on his own review of the bank statements
to identify business-related payments, which he allowed as
business expense deductions for the years in issue.
On October 15, 2004, respondent issued petitioners a
statutory notice of deficiency with respect to their 2000 and
2001 tax years. Respondent determined that petitioners
understated their gross receipts for the 2000 tax year by $37,634
and for the 2001 tax year by $47,207.2 For both the 2000 and
2Respondent determined the $37,634.02 understatement of
gross receipts for petitioners’ 2000 tax year by subtracting
gross receipts as reported by petitioners ($77,894) from gross
receipts as determined by Agent Gomez ($115,528.02). Similarly,
respondent determined the $47,207.73 understatement of gross
receipts for petitioners’ 2001 tax year by subtracting gross
(continued...)
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