Elizabeth Lai - Page 16

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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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