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Petitioners do not dispute respondent’s use of the bank
deposits method of reconstruction and do not allege any specific
error in respondent’s computations. Rather, we understand
petitioners to contend that they maintained business records
during the years in issue that were subsequently lost or
destroyed, that the 2000 and 2001 tax returns accurately reported
petitioners’ income and expenses for the years in issue in
accordance with their lost or destroyed business records, and
that respondent’s determinations are therefore erroneous.
The record demonstrates that petitioners failed to produce
books and records from which respondent could determine their tax
liability for the years in issue. Consequently, we conclude that
respondent’s use of the bank deposits method was proper. See
Estate of Mason v. Commissioner, supra. The record further
demonstrates that respondent properly computed the gross receipts
and business expenses for petitioners’ 2000 and 2001 tax years
under the bank deposits method, as discussed below.
With respect to petitioners’ gross receipts, the parties
stipulated that deposits into the bank accounts during 2000
totaled $222,467.13, including $90,804.03 of nontaxable items and
$16,135.08 of transfers.4 Additionally, the parties stipulated
that deposits into the bank accounts during 2001 totaled
4We note that such “transfers” are nontaxable and could have
been grouped together with the other nontaxable items.
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