Elizabeth Lai - Page 13
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Commissioner’s assertion of a deficiency is presumptively correct
once some substantive evidence is introduced demonstrating that
the taxpayer received unreported income), for the presumption of
correctness to attach to the deficiency determination in
unreported income cases. If the Commissioner introduces some
evidence that the taxpayer received unreported income, the burden
shifts to the taxpayer to show by a preponderance of the evidence
that the deficiency was arbitrary or erroneous. See Hardy v.
Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), affg. T.C.
The Commissioner has broad powers under section 446 to
compute the taxable income of a taxpayer. Sec. 446; Petzoldt v.
Commissioner, 92 T.C. 661, 693 (1989). Generally, such
computation is made using the taxpayer’s regularly employed
method of accounting. Sec. 446(a). If the taxpayer’s method of
accounting does not clearly reflect income, then the method used
shall be the method which, in the Commissioner’s opinion, clearly
reflects income. Sec. 446(b); see Palmer v. U.S. IRS, 116 F.3d
1309, 1312 (9th Cir. 1997).
“The use of the bank deposit method for computing income has
long been sanctioned by the courts.” Estate of Mason v.
Commissioner, 64 T.C. 651, 656 (1975), affd. 566 F.2d 2 (6th Cir.
1977). “A bank deposit is prima facie evidence of income and
respondent need not prove a likely source of that income.”
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Last modified: November 10, 2007