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.               
          Memo. 1997-97.                                                              
               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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