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the $2,000. He participated a few times and did receive some
moneys but was not sure whether he realized any net gains. After
two or three times, he no longer participated in the activity.
In the notice of deficiency, respondent determined that
petitioner’s conduct of this activity resulted in petitioner’s
earning $72,434 during the year 2000. Since no books and records
were maintained by petitioner as to this activity, respondent
made the determination under a bank deposit analysis of
petitioner’s bank account.
Taxpayers are required under section 6001 to keep such
records as may be required to sufficiently establish gross
income. Anson v. Commissioner, 328 F.2d 703, 705 (10th Cir.
1964), affg. Bassett v. Commissioner, T.C. Memo. 1963-10. If a
taxpayer either fails to keep the required records, or if the
records do not clearly reflect income, respondent is authorized
under section 446(b) to reconstruct income by a method which
clearly reflects income. Id.; Sutherland v. Commissioner, 32
T.C. 862 (1959). The bank deposits method is an acceptable
method of reconstructing income and may be used to establish the
correct amount of income. See Michalowski v. Commissioner, T.C.
Memo. 1976-192 (and cases cited therein).
Petitioner contends that the unexplained deposits of $72,434
are accounted for by $60,000 she borrowed from an insurance
company during 2000, approximately $20,000 from another insurance
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