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We decide whether a witness is credible on the basis of
objective facts, the reasonableness of the testimony, and the
demeanor of the witness. Quock Ting v. United States, 140 U.S.
417, 420-421 (1891); Wood v. Commissioner, 338 F.2d 602, 605 (9th
Cir. 1964), affg. 41 T.C. 593 (1964); Dozier v. Commissioner,
T.C. Memo. 2000-255. Having had the opportunity to observe the
above-mentioned witnesses at trial, we find petitioner, Hong Lai,
Sharon Huynh, and Victoria Lai Hutchins to be honest, forthright,
and credible. Based on this testimony and the 31 letters from
the second set of letters, we find that petitioner deposited
proceeds she received from intrafamily loans into her personal
accounts as follows:
Year Amount Deposited
1999 $74,500
2000 68,800
2001 74,000
The above-mentioned amounts are loan proceeds. Loan
proceeds do not constitute income to a taxpayer. Commissioner v.
Tufts, 461 U.S. 300, 307 (1983). We therefore hold that the
above-mentioned amounts are not income to petitioner.
Moreover, the record establishes that the cash petitioner
used to purchase the cashier’s check in 2000 did not represent
unreported income to petitioner. We find the testimony of Hong
Lai, Gioni Birkenfeld, and petitioner credible with regard to the
cashier’s check, and we believe that petitioner used funds that
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