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Commissioner, 96 T.C. 858, 868 (1991), affd. 959 F.2d 16 (2d Cir.
1992).
Petitioners kept no books of account for their Schedule C
pallet business. Records for the pallet business consisted of
petitioners’ checkbook, invoices for sales of pallets dated for
the months of April through November 2002, and purchase orders
for pallets dated for the months of February, March, May, July,
and October through December of 2002. Petitioners reported gross
receipts of $3,638 on Schedule C. Petitioners’ invoices for
sales of pallets for 2002 total $3,400. Respondent was unable to
determine from petitioners’ records whether they deposited their
gross receipts into their bank accounts. He therefore treated
the amounts shown on the invoices for sales of pallets as cash
that was not deposited to their bank accounts. Mrs. Runels
testified, however, that she commingled payments from the pallet
business with their personal funds. But when Mrs. Runels was
asked at trial to identify in her bank records for 2002 deposits
of any of the amounts shown on the invoices for sales of pallets,
she was unable to do so.
Petitioners argue that respondent’s bank deposits analysis
was incorrect because it double counted bank deposits by
including bank transfers. Mrs. Runels, however, testified that
she conferred with the TCO and with counsel for respondent to
demonstrate which items were transfers. Respondent took into
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