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Commissioner, supra at 686-687. Indirect methods may be used for
this purpose. Holland v. United States, 348 U.S. 121 (1954).
The Commissioner’s reconstruction need only be reasonable in
light of all the surrounding facts and circumstances. Petzoldt
v. Commissioner, supra at 687; Giddio v. Commissioner, 54 T.C.
1530, 1533 (1970).
The evidence shows that petitioners failed to provide
adequate records to account for the gross receipts from their
pallet sales. Therefore, it was reasonable for the TCO to use
indirect methods, i.e., the bank deposits method for 2002 and a
“cash T” analysis for 2003, to reconstruct petitioners’ gross
receipts.
2002
Bank deposits constitute prima facie evidence of income.
Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). The bank
deposits method of determining income assumes that all the money
deposited into a taxpayer’s bank accounts during a specific
period constitutes income taxable to the taxpayer. Price v.
United States, 335 F.2d 671, 677 (5th Cir. 1964). The
Commissioner, however, must take into account any nontaxable
source or deductible expense of which he has knowledge. Id.
The method employed is not invalidated even if the calculations
of the Commissioner are not completely correct. DiLeo v.
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