William E. and Karen L. Kivett - Page 5

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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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