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theoretical profit unreasonably exaggerates Mr. Paterson’s
income. We disagree. Mr. Paterson has introduced no evidence of
his actual profit margin or any evidence that would tend to show
respondent’s method was unreasonable or incorrect. Moreover, the
United States District Court for the District of Nebraska has
found it reasonable to assume a bookmaker’s profits will
generally amount to 4.5 percent of total wagers in the excise tax
context. DiMauro v. United States, 81-2 USTC par. 16,373 (D.
Neb. 1981).
In sum, we find Mr. Paterson had unreported income in the
amounts respondent determined in the deficiency notices. We
conclude that the profit factor method respondent used to
reconstruct Mr. Paterson’s bookmaking income was reasonable and
substantially accurate. Petitioners have introduced no
documentary evidence to show otherwise. Any inaccuracies in the
income reconstruction are attributable to Mr. Paterson’s failure
to maintain books and records and to his failure to cooperate
with respondent during the audit.
B. Mrs. Paterson’s Unreported Income: Bank Deposits
Method
We next examine respondent’s use of the bank deposits method
to determine Mrs. Paterson’s unreported income. We have
previously approved the use of the bank deposits method as a
means of income reconstruction. Clayton v. Commissioner, supra
at 645; DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd. 959
F.2d 16 (2d Cir. 1992). It is not arbitrary or capricious for
the Commissioner to use the bank deposits method to compute the
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