Elizabeth Lai - Page 11

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          petitioner’s reported itemized deductions, personal exemptions,             
          self-employment tax, and child tax credit.                                  
               For all 3 years at issue, respondent conducted a bank                  
          deposit analysis to determine the total deposits in petitioner’s            
          business and personal bank accounts.  Respondent excluded                   
          deposits that, in his determination, represented nontaxable                 
          sources, including transfers between petitioner’s accounts.                 
          Respondent determined that the remaining amount was taxable                 
               Respondent added $9,760 of income to petitioner’s reported             
          adjusted gross income for each year.  According to respondent,              
          this figure represented the amount of petitioner’s annual cash              
          expenditures for personal expenses based on the form petitioner             
          filled out at her meeting with Agent Cedergreen on September 23,            
          2002.  Because petitioner withdrew nearly zero cash from her                
          personal and business accounts during 1999, 2000, and 2001,4                
          respondent determined that the $9,760 represented additional                
               For 2000, respondent determined $55,204 of additional                  
          income.  That amount reflects petitioner’s cash purchase of the             
          cashier’s check discussed supra.  Because petitioner did not                
          withdraw cash from any of her bank accounts to provide the funds            

               4  Petitioner wrote one check to cash in 1999 in the amount            
          of $3,500.  Respondent accordingly reduced his deficiency                   
          determination by that amount for 1999.                                      

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Last modified: November 10, 2007