Criminal Tax Manual
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33.00 BANK DEPOSITS
Updated June 2001
33.01 GENERALLY
33.01[1] Consistently Approved Method of Proof
33.01[2] Used Alone or With Other Methods
33.01[3] Cross Reference
33.02 PRELIMINARY FOUNDATION FOR USE
33.03 BUSINESS OR INCOME-PRODUCING ACTIVITY
33.04 ANALYSIS OF DEPOSITS
33.04[1] Generally
33.04[2] Currency Deposits
33.04[3] Missing or Incomplete Bank Records
33.05 ELIMINATION OF NON-INCOME ITEMS
33.05[1] Generally
33.05[2] Proof of Non-Income Items
33.05[3] Good Faith Errors
33.06 UNIDENTIFIED DEPOSITS
33.07 BANK DEPOSITS PLUS UNDEPOSITED CURRENCY EXPENDITURES
33.07[1] Generally
33.07[2] Amount of Cash Expenditures
33.08 CASH ON HAND
33.08[1] Generally
33.08[2] Proof Of Cash On Hand
33.09 REASONABLE LEADS
33.10 USE OF SUMMARY CHARTS AND SCHEDULES
33.11 JURY INSTRUCTIONS
33.12 SAMPLE BANK DEPOSITS COMPUTATION
33.01 GENERALLY
The bank deposits method of proof is one of the primary indirect
methods of proof used by the government in computing taxable income.
United States v. Boulet, 577 F.2d 1165 (5th Cir. 1978), contains a
good description of the mechanics of a bank deposits computation:
To prove its charges, the government relied upon one of the two
traditional indirect methods of proof, analysis of the taxpayer's bank
deposits and cash expenditures. Under this method, all deposits to
the taxpayer's bank and similar accounts in a single year are added
together to determine the gross deposits. An effort is made to
identify amounts deposited that are non-taxable, such as gifts,
transfers of money between accounts, repayment of loans and cash that
the taxpayer had in his possession prior to that year that was
deposited in a bank during that year. This process is called
"purification." It results in a figure called net taxable bank
deposits.
The government agent then adds the amount of expenditures made in
cash, for example, in this case, cash the doctor received from fees,
did not deposit, but gave to his wife to buy groceries. The total of
this amount and net taxable bank deposits is deemed to equal gross
income. This is in turn reduced by the applicable deductions and
exemptions. The figure arrived at is considered to be "corrected
taxable income." It is then compared with the taxable income reported
by the taxpayer on his return.
Boulet, 577 F.2d at 1167.
The bank deposits method of proof has certain features in common with
the net worth method of proof. See Section 31.00, supra.
Both methods are approximations which seek to show by circumstantial means
that the taxpayer had income that was not reported. Holland v. United
States, 348 U.S. 121, 129 (1954); United States v. Hall, 650 F.2d
994, 999 (9th Cir. 1981); United States v. Bray, 546 F.2d 851, 856
(10th Cir. 1976) ("the bank deposits method of proof is not an exact
science").
However, unlike the net worth method, which considers year-end bank
balances, as well as asset acquisitions and liabilities, the focus in a
bank deposits case is on funds deposited during the tax year. Although "the
mechanics of arriving at an income figure are different, both methods
involve similar underlying assumptions and afford much of the same
inferences for and against the accused." Hall, 650 F.2d at 999.
33.01[1] Consistently Approved Method of Proof
The bank deposits method of proof was approved in Gleckman v.
United States, 80 F.2d 394 (8th Cir. 1935). Since that time, the bank
deposits method of proof has "received consistent judicial approval."
United States v. Morse, 491 F.2d 149, 151 (1st Cir. 1974). See
United States v. Mounkes, 204 F.3d 1024, 1028 (10th Cir.), cert.
denied, 530 U.S. 1230 (2000); United States v. Conaway, 11 F.3d
40, 43- 44 (5th Cir. 1993); United States v. Ludwig, 897 F.2d 875,
878 (7th Cir. 1990); United States v. Abodeely, 801 F.2d 1020, 1023
(8th Cir. 1986); United States v. Stone, 770 F.2d 842, 844 (9th Cir.
1985); United States v. Tafoya, 757 F.2d 1522, 1528 (5th Cir.
1985); United States v. Soulard, 730 F.2d 1292, 1296 (9th Cir. 1984);
United States v. Hall, 650 F.2d 994, 999 (9th Cir. 1981); United
States v. Vannelli, 595 F.2d 402, 404 (8th Cir. 1979); United States
v. Normile, 587 F.2d 784, 785 (5th Cir. 1979); United States v.
Helina, 549 F.2d 713, 720 (9th Cir. 1977); United States v. Bray,
546 F.2d 851, 853 (10th Cir. 1976); United States v. Horton, 526 F.2d
884, 887 (5th Cir. 1976); United States v. Esser, 520 F.2d 213, 216
(7th Cir. 1975); United States v. Parks, 489 F.2d 89, 90 (5th Cir.
1974); United States v. Slutsky, 487 F.2d 832, 840 (2d Cir. 1973);
United States v. Stein, 437 F.2d 775, 779 (7th Cir. 1971); United
States v. Lacob, 416 F.2d 756, 759 (7th Cir. 1969); United States v.
Mansfield, 381 F.2d 961, 965 (7th Cir. 1967); United States v.
Moody, 339 F.2d 161, 162 (6th Cir. 1964); Morrison v. United
States, 270 F.2d 1, 2 (4th Cir. 1959); United States v. Nunan,
236 F.2d 576, 587 (2d Cir. 1956); United States v. Venuto, 182 F.2d
519, 521 (3d Cir. 1950); Skinnett v. United States, 173 F.2d 129 (4th
Cir. 1949); see also United States v. Black, 843
F.2d 1456, 1458 (D.C. Cir. 1988) (recognized bank deposits method in order
to distinguish it from the specific items method used in that case).
33.01[2] Used Alone or With Other Methods
Proof of unreported income by the bank deposits method alone is
sufficient. It is not necessary to use another method of proof as
corroboration. United States v. Stein, 437 F.2d 775, 779 (7th Cir.
1971), and cases cited.
The bank deposits method can, however, be used as corroboration of
other methods of proof. See United States v. Tafoya, 757 F.2d
1522, 1528 (5th Cir. 1985), where the primary method of proof was the
specific items method and "bank deposits evidence was admitted only to
corroborate the evidence of specific payments." Similarly, in United
States v. Horton, 526 F.2d 884, 887 (5th Cir. 1976), a specific items
prosecution, "evidence of total bank deposits during the years in question
was properly admissible as corroborative evidence." Where the bank deposits
method of proof is used as corroboration, however, the jury should be
instructed to limit its consideration of the bank deposits evidence to
corroboration of the other method of proof. Tafoya, 757 F.2d at
1528; Horton, 526 F.2d at 887.
In United States v. Hall, 650 F.2d 994, 996-97 (9th Cir. 1981),
"the prosecution elicited testimony from its experts establishing
appellants' income by both the 'net worth' and the 'bank deposits' methods
of proof." The conviction was reversed, not because two methods of proof
were used, but because of a failure to give explanatory instructions to the
jury on the indirect methods of proof used by the government. Hall,
650 F.2d at 999.
Many cases use the bank deposits method of proof in conjunction with
the specific items method. For example, in United States v.
Procario, 356 F.2d 614, 616 (2d Cir. 1966):
The government relied for proof partly on direct evidence from
patients and their cancelled checks, and partly on the bank deposit
method, modified so as to yield the rest of appellant's professional
income.
Procario, 356 F.2d at 616.
See also United States v. Nunan, 236 F.2d 576,
582, 586 (2d Cir. 1956), where the government introduced evidence in the
form of the bank deposits method of proof and also introduced evidence of
specific items of taxable income which had been omitted from the defendant's
returns -- "proof relative to the specific items of taxable income which
were omitted from the returns in the light of the evidence as a whole was of
itself sufficient to support the verdict." Nunan, 236 F.2d at 586.
33.01[3] Cross Reference
It will help in understanding the discussion of the bank deposits
method of proof which follows if reference is made to the sample bank
deposits computation reproduced in Section 33.12, infra.
Reference also should be made to Section 31.00, supra, treating
the net worth method of proof since, as noted above, a number of the
underlying assumptions in the bank deposits method of proof are the same as
those in the net worth method of proof.
Finally, reference should be made to the Manual section, supra,
on the specific violation under consideration, since the bank deposits
method of proof merely concerns the computation of income and not the other
elements of a given offense.
33.02 PRELIMINARY FOUNDATION FOR USE
The classic bank deposits case is Gleckman v. United States, 80
F.2d 394 (8th Cir. 1935). As noted in Gleckman, "the bare fact,
standing alone, that a man has deposited a sum of money in a bank would not
prove that he owed income tax on the amount; nor would the bare fact that he
received and cashed a check for a large amount, in and of itself, suffice to
establish that income tax was due on account of it." Id. at 399. The
court in Gleckman went on to describe the foundation for using the
bank deposits method of proof as follows:
On the other hand, if it be shown that a man has a business or calling
of a lucrative nature and is constantly, day by day and month by
month, receiving moneys and depositing them to his account and
checking against them for his own uses, there is most potent testimony
that he has income, and, if the amount exceeds exemptions and
deductions, that the income is taxable.
Gleckman, 80 F.2d at 399.
The teaching of Gleckman and its progeny is that to use the
bank deposits method of proof, the government must initially introduce
evidence showing that:
1. The taxpayer was engaged in a business or income-producing
activity from which the jury can infer that the unreported
income arose;
2. Periodic and regular deposits of funds were made into accounts
in the taxpayer's name or over which the taxpayer had dominion
and control;
3. An adequate and full investigation of those accounts was made in
order to distinguish between income and non-income deposits;
4. Unidentified deposits have the inherent appearance of income,
e.g., the size of the deposits, odd or even amounts,
fluctuations in amounts corresponding to seasonal fluctuations
of the business involved, source of checks deposited, dates of
deposits, accounts into which deposited, etc.
United States v. Abodeely, 801 F.2d 1020, 1023 (8th Cir. 1986);
United States v. Stone, 770 F.2d 842, 844 (9th Cir. 1985); United
States v. Helina, 549 F.2d 713, 720 (9th Cir. 1977); United States v.
Morse, 491 F.2d 149, 152 (1st Cir. 1974); United States v.
Slutsky, 487 F.2d 832, 841-42 (2d Cir. 1973); United States v.
Venuto, 182 F.2d 519, 521 (3d Cir. 1950).
33.03 BUSINESS OR INCOME-PRODUCING ACTIVITY
In the first instance, it must be shown that during the tax years in
question the taxpayer was engaged in an income-producing business or
calling. This is relatively simple and ordinarily does not present a problem
-- the taxpayer was or was not involved in an income-producing activity.
As can be imagined, the cases involve a wide range of
income-producing activities, including, for example: attorney, politician,
and former Commissioner of Internal Revenue, United States v. Nunan,
236 F.2d 576, 579 (2d Cir. 1956); personal injury attorney, United States
v. Lacob, 416 F.2d 756, 758 (7th Cir. 1969); doctors, United States
v. Boulet, 577 F.2d 1165, 1167 (5th Cir. 1978), and United States v.
Esser, 520 F.2d 213, 215 (7th Cir. 1975); partners in a resort hotel in
the Catskill Mountains, United States v. Slutsky, 487 F.2d 832, 835
(2d Cir. 1973); dealer in wholesale meat, United States v. Stein, 437
F.2d 775, 776 (7th Cir. 1971); operator of a retail meat store,
slaughterhouse, and rental properties, United States v. Venuto, 182
F.2d 519, 520 (3d Cir. 1950); retailers, United States v. Hall, 650
F.2d 994, 996 (9th Cir. 1981), and Graves v. United States, 191 F.2d
579, 581 (10th Cir. 1951); seller of ice cream franchises, United States
v. Soulard, 730 F.2d 1292, 1296 (9th Cir. 1984); operator of a gambling
casino, Percifield v. United States, 241 F.2d 225, 226 (9th Cir.
1957); and, dealer in gravestones, United States v. Fowler, 605 F.2d
181, 182 (5th Cir. 1979).
The income-producing business can be an illegal activity, e.g.,
bribes, Malone v. United States, 94 F.2d 281, 287-88 (7th Cir. 1938);
prostitution, United States v. Abodeely, 801 F.2d 1020, 1025 (8th
Cir. 1986); embezzlement, United States v. Vane attempted
assassinations, United lli, 595 F.2d 402, 406 (8th Cir. 1979); and,
income from States v. Tafoya, 757 F.2d 1522, 1526-27 (5th Cir. 1985).
Caution must be exercised, however, in the use and presentation of evidence
relating to an illegal source of income. See Section 31.12(3),
supra, Illegal Sources of Income.
33.04 ANALYSIS OF DEPOSITS
33.04[1] Generally
The basic underlying assumption in the bank deposits method of proof
is that if a taxpayer is in an income-producing activity, and regularly and
periodically makes deposits to bank accounts, then those deposits, after
adjustments, constitute taxable income. United States v. Morse, 491
F.2d 149, 152 (1st Cir. 1974); Gleckman v. United States, 80 F.2d
394, 399 (8th Cir. 1935).
Heavy reliance is placed on an analysis of deposits in establishing a
relationship between the deposits and the income-producing activity. The
composition of each deposit is determined, to the extent possible, based on
obtainable bank records, third-party records, and any admissions of the
taxpayer.
The government then generally shows by direct evidence that a number
of the deposited items are, in fact, taxable receipts. The number so
verified varies from case to case. See, e.g., United
States v. Venuto, 182 F.2d 519, 520 (3d Cir. 1950), where, in addition
to the government introducing evidence that receipts from defendant's
businesses were deposited regularly and currently, government agents
testified that they analyzed the bank accounts, and defendant's check stubs
and cancelled checks, verifying through third-party suppliers, actual
purchases of merchandise bought for sale. In addition, the defendant's real
estate income was verified through statements of receipts and disbursements
prepared by the real estate firm that managed the defendant's business.
See also United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir.
1993); United States v. Esser, 520 F.2d 213, 217 (7th Cir. 1975).
There is, however, no fixed requirement that the government verify a
certain percentage of the defendant's deposits as income items. All that
the government has to prove is that the defendant was engaged in an
income-producing business, that regular deposits of funds having the
appearance of income were in fact made to bank accounts during the year in
question, and that the government did everything that was fair and
reasonable to identify and deduct any non-income items. Esser, 520
F.2d at 217. Obviously, the jury may feel more comfortable with a higher
percentage of verified deposits.
For an example of an investigation involving a sampling of total
deposits, see United States v. Stone, 770 F.2d 842, 844 (9th
Cir. 1985), involving a doctor, where Internal Revenue Service agents
obtained bank copies of signature cards, monthly statements, and deposit
slips, and contacted a number of insurance companies requesting copies of
checks issued to the defendant for medical services and claim forms
submitted for medical services. The agents then analyzed the bank records of
the checks deposited into the defendant's accounts:
In order to discover what portion of Stone's total deposits
represented payment for medical services rendered, the IRS selected 12
large deposits -- one for every other month in 1976 and 1977 -- as a
representative sample, and had the bank produce a copy of every check
deposited with those deposits.
The IRS attempted to verify that these checks were payments for
medical services rendered by writing or calling the makers of the
checks. Although the IRS was only able to verify a small portion of
the checks, almost all the checks so verified in the sampling process
were payments for medical services. Checks that were for nonincome
items were identified by the IRS and excluded from gross receipts from
the medical practice.
Stone, 770 F.2d at 844.
33.04[2] Currency Deposits
The usual bank deposits case will involve a mixture of check and cash
deposits. If the case does include currency deposits, then any cash
withdrawals or checks made payable to cash or to the taxpayer and
subsequently cashed must be deducted from the total amount of deposits,
unless it can be shown that the cash withdrawals and the checks cashed were
not used to make the currency deposits. If the taxpayer is not given credit
under these circumstances for such potential redeposits, a duplication can
result, yielding an inflated figure for taxable income.
For example, assume that during the year the taxpayer earned $25,000,
which is in the form of $15,000 in checks and $10,000 in cash, all of which
was deposited in the taxpayer's bank account. Assume further that during
the year the taxpayer made out checks to cash totalling $7,000 and deposited
the resulting cash into the account. The total amount of deposits would be
$32,000 ($25,000 plus $7,000), indicating gross receipts of $32,000. This
inflated amount is caused by a duplication -- the $7,000 was counted when it
was deposited initially and again when it was redeposited, after having been
withdrawn. In the example given, it would be necessary to deduct $7,000
from the total deposits in order to prevent duplication, i.e.,
$32,000 minus $7,000 equals $25,000, which is what the taxpayer earned.
Note that if the taxpayer had issued checks to cash totaling only $3,000,
then it would be necessary to subtract only $3,000 from total deposits,
since $3,000 would be the maximum amount of currency that could have been
redeposited.
Additionally, if the taxpayer had checks to cash totalling $12,000,
then it would not be necessary to subtract that amount. At most, $10,000
could have been redeposited, since that was the total amount of currency
deposits for the year, and only $10,000 need be subtracted. However, this
situation would leave the taxpayer with an additional $2,000 in cash that
could be redeposited in a subsequent year and create a duplication. If the
$2,000 cannot be accounted for in an expenditure and the taxpayer has
currency deposits in the following year, then this $2,000 may have to be
subtracted from total currency deposits the following year depending on the
circumstances of the case.
On the other hand, there would be no duplication and no need to
subtract cash withdrawn from the total of the deposits if there were no
currency deposits made during the year, since any checks to cash were
obviously not cashed and deposited in the account. And even where there are
currency deposits, it is still not necessary to subtract cash withdrawals
from the total currency deposits if the resulting cash can be traced to a
use other than the redepositing of the funds. Thus, if it can be shown that
all currency deposits for the year precede the dates of any cash withdrawals
or checks to cash, then no elimination is required. The timing establishes
that the source of the currency deposits must have been funds other than
those withdrawn from the account. In a similar fashion, no elimination of
currency deposits is necessary if it can be shown that cash withdrawals were
used for specific purposes (e.g., food, clothing, etc.), and thus
were not funds redeposited in the taxpayer's bank account. See
Beard v. United States, 222 F.2d 84, 87-88 (4th Cir. 1955).
Although United States v. Caserta, 199 F.2d 905 (3d Cir. 1952),
is an expenditures case, the principles discussed are applicable to a bank
deposits case. Caserta contains an excellent explanation of the
duplication that can result in an expenditures case where deposits and
withdrawals are not properly accounted for. In the words of the court:
If a man has a bank account and puts everything he receives into the
account, his expenditures are pretty well shown by what he spends it
for in checking it out. But suppose he withdraws from his bank
account a sum in cash, a check made payable to himself or an
impersonal payee. Does that show expenditure? It may well do so if
we proceed on the ordinary assumption that people do not draw money
from bank accounts unless they are going to spend the money for
something. On the other hand, suppose a man writes a check to "cash"
for $500. and the same day buys an overcoat for $100. and a suit of
clothes for the same amount. Now what do we charge him with, an
expenditure of $700.? If cash withdrawals from a bank account are to
be treated as cash receipts to a person, surely it is incorrect to
charge individual items for which he has paid cash to his list of
expenditures unless it is shown that the cash bank withdrawals had
nothing to do with the individual items. Otherwise, a man doubles his
taxable income when he writes a check for "cash" and spends the money
he gets from his bank. This would be a very happy way of increasing
one's income if it could be done.
Caserta, 199 F.2d at 907.
For the same reasons given in the Caserta case, it is error to
charge a taxpayer in a bank deposits case with currency deposits, unless it
can be shown that the source of the currency deposits was not funds
withdrawn from the taxpayer's bank account.
33.04[3] Missing or Incomplete Bank Records
An effort obviously should be made to obtain all of the bank records
for a given year. This is not always possible. The effect of missing or
unavailable records will depend on the nature of the missing records, and
whether a thorough government investigation and analysis can overcome the
gap in records.
In Beard v. United States, 222 F.2d 84 (4th Cir. 1955), there
were currency deposits made to one of the defendant's accounts, and the
government agents were unable to identify withdrawals from this account
since they did not have access to the defendant's cancelled checks. In
affirming the conviction, the court pointed out that the agents conducted an
"exhaustive search to ascertain what deductions should be made for possible
duplications, business expenses, and amounts not attributable to the
defendant's gambling operations" and, in addition, an extensive
investigation was conducted to demonstrate the source of deposited items.
Beard, 222 F.2d at 86-88.
In United States v. Esser, 520 F.2d 213, 216 (7th Cir. 1975),
"it was virtually impossible to introduce the deposit slips due to their
poor quality, unreliability, and unavailability." The government introduced
the bank statements and passbooks as the most reliable evidence available.
On cross-examination, the defendant attempted to establish that the deposit
slips and underlying items were capable of retrieval. The question was left
as one of fact for the jury. The court rejected the argument that a failure
by the government to specifically identify and analyze the defendant's
deposit slips and underlying items was fatal to the government's case. The
full investigation of the deposits and underlying items, and the taking of
reasonable steps to identify and deduct non-income items was sufficient.
Esser, 520 F.2d at 217. Accord United States v.
Abodeely, 801 F.2d 1020, 1025 (8th Cir. 1986).
A similar argument was rejected in United States v. Soulard,
730 F.2d 1292, 1297 (9th Cir. 1984), where the defendant argued that the
trial court erroneously admitted the government's bank deposits analysis
because the government failed to establish that it had introduced into
evidence complete sets of the defendant's bank records. The court rejected
the argument, holding that the issue of the completeness of bank records
goes to the jury's determination of the weight of the evidence, not its
admissibility. Soulard, 730 F.2d at 1298. Cf. United
States v. Stone, 770 F.2d 842, 844-45 (9th Cir. 1985) (IRS selected
twelve large deposits as a representative sample, and had the bank produce a
copy of every check deposited with those deposits).
33.05 ELIMINATION OF NON-INCOME ITEMS
33.05[1] Generally
An adequate and full investigation of the taxpayer's accounts must be
conducted to distinguish between income and non-income deposits to support
the inference that the unexplained excess in deposits is currently taxable
income. United States v. Lawhon, 499 F.2d 352, 356 (5th Cir.
1974); United States v. Morse, 491 F.2d 149, 152 (1st Cir. 1974);
see United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993).
The government is not required, however, to negate every possible
non-income source of each deposit, particularly where the source of the
funds is uniquely within the knowledge of the taxpayer and the government
has checked out those explanations given by the taxpayer that are reasonably
susceptible of investigation. United States v. Conaway, 11 F.3d at
43-44; United States v. Boulet, 577 F.2d 1165, 1171 (5th Cir. 1978).
The adequacy of the investigation necessarily turns on the
circumstances of each case. United States v. Slutsky, 487 F.2d 832,
841 (2d Cir. 1973). The rule is one of practicality. Although the
government is not required to negate all possible non-income sources of
deposits to the taxpayer's accounts, United States v. Slutsky, 487
F.2d at 841, "the agent does have an overall burden to prove that he has
done the best he can to discover, and exclude, all non-income items from the
reconstructed income," Morse, 491 F.2d at 154. For examples of the
investigative steps taken to distinguish between income and non-income
deposits, see United States v. Hall, 650 F.2d 994, 1000 (9th
Cir. 1981); United States v. Helina, 549 F.2d 713 (9th Cir. 1977);
United States v. Stein, 437 F.2d 775, 778 (7th Cir. 1971); United
States v. Venuto, 182 F.2d 519, 520 (3d Cir. 1950).
33.05[2] Proof of Non-Income Items
If the analysis categorizes certain deposits as "non-income", the
direct evidence the agent relied upon to make that determination must be
introduced. It is error to rely merely on hearsay testimony of the
investigating agent. United States v. Morse, 491 F.2d 149, 152-55
(1st Cir. 1974).
In Morse, the agent testified that after completing a thorough
investigation, he identified non-income deposits into the defendant's bank
accounts from loan proceeds, inter-bank transfers, proceeds from the
transfer of land, and proceeds from the sale of a truck. Morse, 491
F.2d at 153.
However, the government did not introduce any of the documents upon
which the agent had relied, on the grounds that since the items were a
credit to the defendant, no prejudice would result. The appellate court
reversed because of the possible prejudice to the defendant if the
government did not accurately calculate the amounts of the non-income
deposits. Morse, 491 F.2d at 154. The court stated "[w]here direct
evidence is available as to their existence and magnitude, there is no need
to rely on the agent's hearsay assertion that they were no larger than he
had accounted for. Accordingly, we cannot accept the government's
position." Id.
In Morse, for example, although bank ledger cards were
available to prove loan proceeds, the government did not introduce them,
which deprived the court and jury of any knowledge of the particular banks
from which the defendants received the loans, the dates of the loans, and
the amount of each loan. Morse, 491 F.2d at 154. Similarly, the
court pointed out that the agent's hearsay testimony also affected
non-income deposits regarding inter-bank transfers, returned checks, and
sales proceeds. Morse, 491 F.2d at 155 n.10.
The foregoing should be distinguished from the situation where the
investigation does not disclose any non-income deposits or any non-income
deposits in addition to those allowed. "To be sure, the court must rely on
mere assertion when the agent testifies that he could find no evidence of
other non-income items, but then, of course, no better evidence would
exist." Morse, 491 F.2d at 154 n.8.
33.05[3] Good Faith Errors
In a bank deposits computation, as in any other tax case, unreported
income which results from good faith accounting errors and the like
(i.e., a mathematical error by an accountant) should not be included
in the computation of unreported income. United States v. Stein, 437
F.2d 775, 777 (7th Cir. 1971). See also United States v.
Allen, 522 F.2d 1229, 1231 (6th Cir. 1975); United States v.
Altruda, 224 F.2d 935, 940 (2d Cir. 1955). See Section 31.11,
supra.
33.06 UNIDENTIFIED DEPOSITS
After seeking to identify the sources of the bank deposits, those
deposits which have not been established as either income or non-income
deposits are denominated as "unidentified deposits". To the extent that
such unidentified deposits have the inherent appearance of current income,
they are included with identified income deposits in determining the
taxpayer's income.
In Gleckman v. United States, 80 F.2d 394, 397 (8th Cir. 1935),
the bank deposits computation included over $92,000 in untraceable cash
deposits and unidentified deposits. The defendant argued that those
deposits "may just as well have been drawn from nontaxable transactions as
from services or business." Gleckman, 80 F.2d at 399. Rejecting
this argument, the court pointed out that there was substantial
circumstantial evidence in the record that the defendant had an unreported
business, and that some of the deposits were derived from this business.
Thus, the deposits were sufficiently shown to be of a taxable nature.
Gleckman, 80 F.2d at 399-400. Note that in Gleckman, the
government demonstrated that the defendant had an illegal business apart
from the business described in his tax return, that property statements
showed that the defendant's net worth had increased, and that the government
auditor had spent weeks with the defendant's agent in unsuccessfully
attempting to find explanations for the deposits that would justify
eliminating them from taxable income. Gleckman, 80 F.2d at 400.
United States v. Slutsky, 487 F.2d 832, 841 (2d Cir. 1973),
involved approximately $18 million in total deposits over a three-year
period and, of the total charged as income, approximately $8.6 million was
in unidentified deposits and $1 million was in currency. The court held
that the government's investigation was sufficient to support the inference
that unexplained excess receipts were attributable to currently taxable
income and that the government was not required to negate all possible
non-income sources of the deposits. Slutsky, 487 F.2d at 841.
Holding that the government's investigation was "clearly sufficient under
the particular circumstances of the case", the court found that the
investigation included a detailed check of every item in an amount greater
than $1,000, with very few specified exceptions, and a random check of 1447
items in amounts less than $1,000, with the analyzed items found to
constitute income in virtually every instance. Slutsky, 487 F.2d at
841-42. In addition, almost every item in an amount under $1,000 was
reflected by a check with a room number encircled on the back (the
defendants operated a resort in the Catskill Mountains). Slutsky,
487 F.2d at 842. Commenting on the government investigation, the court
concluded:
To hold the government to a stricter duty of investigation than it
performed here would be to ignore both the "reasonableness" and
"fairness" strictures that have been imposed; it would also result in
an exercise in diminishing returns in terms both of the provision of
relevant information to the fact-finder and of the protection of the
rights of taxpayers.
Slutsky, 487 F.2d at 842.
In United States v. Lacob, 416 F.2d 756, 758 (7th Cir. 1969),
the court upheld as adequate an investigation involving total deposits of
$99,000 in one year by a lawyer who specialized in personal injury claims
and received fees of 20% or 33 1/3% of the recovery obtained, depending on
whether the case was a workmen's compensation claim or a personal injury
claim. There were approximately $39,000 in unidentified and unexplained
checks deposited. The defendant was charged with income equal to 20% of
these checks, based on the assumption, in the absence of other proof, that
these were the proceeds of the defendant's cases and that his fee was the
lower of the two fee bases he used. Similarly, in United States v.
Procario, 356 F.2d 614, 617-18 (2d Cir. 1966), the defendant was a
doctor, and more than one-third of the total alleged professional receipts
were in the form of deposits not identified by the government. Rejecting
the defendant's argument that there was no evidence from which the jury
could have inferred that the unidentified deposits represented income from
professional services, the court said:
The government relied on the fact that it excluded all possible
dividends, on the small size and relative frequency of the deposits,
similar to deposits and other income proven to be professional
receipts, and on the fact that appellant had patients other than
those whose payments were included in Items 4 and 6, the directly
proven items of income. This was sufficient.
Procario, 356 F.2d at 618.
The basis of the government's case in Graves v. United States,
191 F.2d 579, 581-82 (10th Cir. 1951), was that the defendant, who operated
drug stores, realized income that was not deposited in the store bank
accounts, not entered in the books, and not reported on his return. The
"purported income" was represented by currency deposits in various special
and personal bank accounts of the defendant and his wife, the purchase of
government bonds, the sale of cattle, a loan of money, and a personal check
from a store manager representing store receipts. The court agreed with the
defendant that currency deposits in the defendant's bank account, standing
alone, did not prove unreported income but went on to say that "currency
deposits from unidentified sources which are not reflected in the books and
records from which income tax returns are made and tax liability determined
are substantial evidence of an understatement of income and it is incumbent
upon the taxpayer to overcome the logical inferences which may be drawn from
these proven facts." Graves, 191 F.2d at 582.
In United States v. Ludwig, 897 F.2d 875, 882 (7th Cir. 1990),
the Seventh Circuit upheld a conviction based partly on unidentified
deposits, which the defendants claimed were "irregular, not specifically
identified as coming from any particular income source, were made to a
personal rather than business account, and were placed in an account that
[one defendant] had no control over." The court of appeals held that the
jury was properly instructed that "the duty to reasonably investigate
applies only to suggestions or explanations made by the defendant or to
reasonable leads which otherwise turn up. The government is not required to
investigate every possible source of non-taxable funds". Ludwig, 897
F.2d at 882.
On the other hand, it is necessary that the facts and circumstances
put in evidence by the government justify, by reasonable inference at least,
that the unidentified deposits represent income items. Kirsch v. United
States, 174 F.2d 595, 601 (8th Cir. 1949). In reversing the conviction
in Kirsch, the court criticized the failure of the government to make
any effort to investigate the unidentified deposits. The agent testified at
the trial that he was aware that all of the deposits were not income, and
instead of making an effort to find out the amounts of nonincome deposits,
he simply assumed that all deposits were income. In doing so, he shifted
the burden to the defendant to show how much was not income or suffer the
consequences. This procedure, said the court, "cannot be approved."
Kirsch, 174 F.2d at 601. See also Paschen v. United
States, 70 F.2d 491, 497 (7th Cir. 1934). Ultimately, whether
unidentified deposits are accepted as current receipts will depend on the
strength of the evidence supporting the relationship of the deposits to an
income-producing activity, the completeness of the analysis of deposits, and
the thoroughness of the investigation conducted.
33.07 BANK DEPOSITS PLUS UNDEPOSITED CURRENCY EXPENDITURES
33.07[1] Generally
In some cases it will be found that a taxpayer engaged in a business
or income-producing activity, made regular and periodic deposits to a bank
account and, in addition, made a number of cash expenditures by using cash
that was never deposited in the taxpayer's bank account. In this situation,
as explained in United States v. Boulet, 577 F.2d 1165, 1167 (5th
Cir. 1978), after the bank deposits have been added together and nontaxable
amounts are eliminated, the amount of expenditures made in cash (but not
deposited) is added to derive gross income. Applicable deductions and
exemptions are then subtracted, resulting in corrected taxable income.
Boulet, 577 F.2d at 1167. See also United States v.
Mounkes, 204 F.3d 1024, 1028 (10th Cir.), cert. denied, 530 U.S.
1230 (2000); United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir.
1993); United States v. Abodeely, 801 F.2d 1020, 1024 (8th Cir.
1986); United States v. Ayers, 673 F.2d 728, 730 (4th Cir. 1982);
United States v. Berzinski, 529 F.2d 590, 592 (8th Cir. 1976); United
States v. Morse, 491 F.2d 149, 152 (1st Cir. 1974) (after totaling
deposits and eliminating non-income items, "[t]he Government then includes
any additional income which the taxpayer received during the tax year but
did not deposit in any bank account"); Morrison v. United States, 270
F.2d 1, 23 (4th Cir. 1959); Percifield v. United States, 241 F.2d
225, 229 n.7 (9th Cir. 1957); United States v. Nunan, 236 F.2d 576,
580 (2d Cir. 1956); Bostwick v. United States, 218 F.2d 790, 794 (5th
Cir. 1955).
The underlying theory in including expenditures made with cash that
did not go through the bank account in the analysis is that it may be
inferred that the cash expenditures were made with current income, unless
they are shown to have been made from non-income sources. But
see Abodeely, 801 F.2d at 1024 (government must demonstrate
beyond a reasonable doubt that the unreported income came from a taxable
source). Abodeely does not, however, require the government to
negate absolutely all possible sources of non-taxable income. Quoting
United States v. Esser, 520 F.2d 213, 217 (7th Cir. 1975), the court
in Abodeely stated that the government must "'do everything that is
reasonable and fair . . . [in] the circumstance to identify any non-income
transactions . . . .'" Alternatively, the government may prove a likely
source of the income. Abodeely, 801 F.2d at 1025. Technically, it
should not be necessary to establish cash on hand in a bank deposits case,
because the method is grounded on the concept that if the taxpayer is in an
income-producing business and makes regular and periodic deposits to a bank
account, any deposits remaining after eliminating non-income items represent
taxable income. Where cash expenditures are added to deposits, however, the
cases indicate that the government must establish the amount of cash the
taxpayer had on hand at the start of the prosecution period. See,
e.g., United States v. Soulard, 730 F.2d 1292, 1298 (9th Cir.
1984); Boulet, 577 F.2d at 1168; United States v. Slutsky, 487
F.2d 832, 842 (2d Cir. 1973). See Section 33.08, infra, Cash
on Hand. This is done to prevent charging the taxpayer with income for
expenditures made not with current income but with nontaxable prior
accumulated funds.
The "bank deposits and cash expenditures" method is not an
amalgamation of the "bank deposits" method and the "expenditures" method.
Abodeely, 801 F.2d at 1024. There is no need to show net worth when
using this method. Conaway, 11 F.3d at 43; Abodeely, 801 F.2d
at 1024; Boulet, 577 F.2d at 1167 & n.3; Percifield, 241 F.2d
at 230.
33.07[2] Amount of Cash Expenditures
There are two ways of establishing the amount of cash expenditures.
The first is by direct proof of specific currency expenditures from
undeposited funds uncovered during the investigation. The second is by the
indirect method of comparing known total disbursements for specific
categories claimed on the tax return (e.g., business expenses) with
checks written for such disbursements, with any amount claimed on the return
in excess of check expenditures treated as a currency expenditure. As to
cash expenditures uncovered during the investigation, the proof consists of
merely establishing that the currency expenditures were made with
nondeposited funds. Thus, either through testimony or documents it is
established that the taxpayer made expenditures in cash and not through a
checking account. If the taxpayer has withdrawn cash from a bank account
during the year, however, then any such cash withdrawals must be subtracted
from the currency expenditures unless it can be shown that the withdrawn
cash was not used to make a currency expenditure. Once this is done, the
theory is that the undeposited currency expenditures were made with and
represent current taxable income, after the elimination of any non-income
items, in the same way that deposits represent taxable income.
The indirect method of establishing undeposited currency expenditures
is to start with an expenditure claimed by the taxpayer on the tax return
and compare this amount with checks written for the expenditure. If it can
be shown that the taxpayer's checks do not account for all or a part of the
expenditure, then any amount not paid by check must have been paid in cash.
For example, if the taxpayer has claimed business expenses of $20,000, and
checks can be shown as accounting for only $12,000 in business expenses,
then it follows that the remaining $8,000 was paid in cash. Under these
circumstances, the $8,000 paid in cash would be added to deposits in
arriving at taxable income. For an example of the application of this
method of establishing cash expenditures, see Greenberg v. United
States, 295 F.2d 903 (1st Cir. 1961):
This leads us into the serious evidentiary objections. Gray's theory
of building up the company's gross receipts by deducting from the
merchandise expense item on the returns the amount paid for
merchandise by check and attributing the balance to non-bank account
cash, which, in turn, he labelled additional gross receipts, was
entirely fair.
Greenberg, 295 F.2d at 903.
The conviction in Greenberg was reversed, however, because of
hearsay testimony by the agent. Thus, in Greenberg, the government
sought to prove the purpose of checks drawn by the taxpayer solely through
the conclusory testimony of the special agent that the checks he selected
represented payments for merchandise and that any excess amount claimed on
the return as a merchandise expense represented a cash expenditure.
Greenberg, 295 F.2d at 906. The special agent's analysis of the
checks was based on inquiries which he had made previously to the payees of
the checks. No payee or other third party, however, testified at the trial.
Further, no records or admissions of the defendant as to the purpose of the
checks was introduced. Greenberg, 295 F.2d at 904. The court held
that it was elementary that the purpose of the checks could not be
established by what third parties had told the agent out of court, or by the
agent's testimony of what he concluded from his examination of the checks.
Greenberg, 295 F.2d at 908. In the example given above, it would
thus be error for the agent merely to review and classify certain checks as
being for business purposes. It would be necessary to call the third-party
payees as witnesses or to introduce other testimonial or documentary
evidence establishing the purpose of the checks.
Note that where the agent has interviewed the taxpayer and the
taxpayer states the purpose for which a check was issued, this constitutes
an admission, and it is not necessary to call in the third parties. Fed. R.
Evid. Rule 801(d)(2)(A). In this situation, it is common for the agent to
prepare a check spread on the basis of the taxpayer's admissions and
introduce the schedule, as an admission, into evidence.
33.08 CASH ON HAND
33.08[1] Generally
The rationale of the bank deposits method of proof supports the
reasoning that affirmative proof as to opening cash on hand is not
necessary. Net worth need not be established in a bank deposits case.
United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993);
United States v. Abodeely, 801 F.2d 1020, 1024 (8th Cir. 1986);
United States v. Boulet, 577 F.2d 1165, 1167 & n.3 (5th Cir. 1978).
Therefore, cash on hand should be relevant not as an asset, but as a
potential source of deposits. The underlying evidence introduced to
establish the relationship between deposits and the income-producing
activity is often sufficient to support a finding that the deposits are
current receipts. This argument is strongest when a substantial number of
deposits are identified as income and there are not significant currency
deposits or cash expenditures involved in the bank deposits analysis.
In United States v. Slutsky, 487 F.2d 832, 842 (2d Cir. 1973),
the Second Circuit, in affirming a conviction for tax evasion, suggested
that an essential element in all bank deposits cases is the establishment of
cash on hand. However, the need for an adequate starting point was
necessary in Slutsky because the case involved both currency deposits
and the existence of a "cash on hand account" in proving unreported
receipts. It would not seem appropriate to extend the rationale of
Slutsky to all bank deposits cases, especially those cases not
involving currency deposits or a cash on hand account.
A blind adherence to Slutsky can lead to an unrealistic and
fanciful result. Thus, in United States v. Birozy, 74-2 T.C. 9564
(E.D.N.Y. 1974), the trial judge entered a judgment of acquittal on the
basis that the government failed to establish a starting cash on hand amount
for the defendant. However, the record indicates that there was only $2,300
in cash deposits out of apparently some $200,000 in total deposits, and even
if the $2,300 in cash deposits was eliminated, there still existed a
substantial tax due and owing.
For a more realistic approach, see Scanlon v. United
States, 223 F.2d 382, 388-89 (1st Cir. 1955) (even if reasonable lead is
assumed to be true, it accounted for only $3,000 out of $23,466, and the
evidence was therefore sufficient to convict). The better and correct view
would seem to be that whether the government must establish the taxpayer's
cash on hand will depend on the circumstances of a given case. Generally
speaking, if the bank deposits computation does not include any currency
deposits and undeposited cash expenditures are not added to deposits in
arriving at taxable income, then it should not be necessary to establish the
taxpayer's cash on hand. Under these circumstances, a cash hoard defense
would be irrelevant because, even if there were a cash hoard, it could not
have played a role in the bank deposits computation.
There can be exceptions to this general rule, depending on the facts
of a given case. For example, in theory, a taxpayer could have a cash
hoard, purchase a cashier's check with the cash hoard and then deposit that
check in his bank account. This is a theoretical possibility, but unless
the taxpayer volunteers such an explanation, the government should not have
a duty to refute it. "The government is not required to negate all possible
non-income sources of the deposits, particularly where the source of the
income is uniquely within the knowledge of the taxpayer", and it is shown
that a thorough investigation was conducted. United States v.
Boulet, 577 F.2d 1165, 1168-69 (5th Cir. 1978). See also
United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993);
Slutsky, 487 F.2d at 842.
On the other hand, if the bank deposits computation includes currency
deposits, the cases indicate that the government must establish a beginning
cash on hand figure. The underlying principle is that if the taxpayer
deposited pre-existing cash into his bank accounts during the tax years in
question, then this could explain the "excessive" deposits and reduce or
eliminate the claimed understatement of income. United States v.
Soulard, 730 F.2d 1292, 1298 (9th Cir. 1984); United States v.
Shields, 571 F.2d 1115, 1120 (9th Cir. 1978). Similarly, cash on hand
must be established where nondeposited cash expenditures are added to
deposits in arriving at taxable income, unless it can be demonstrated
clearly that any pre-existing cash on hand was not the source of the
expenditures. See Boulet, 577 F.2d at 1168.
33.08[2] Proof Of Cash On Hand
The government is not obligated to prove cash on hand "with
mathematical exactitude." United States v. Mounkes, 204 F.3d 1024,
1028 (10th Cir.), cert. denied, 530 U.S. 1230 (2000); United
States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993); United States
v. Boulet, 577 F.2d 1165, 1170 (5th Cir. 1978); It is only required
that the government prove cash on hand "with reasonable certainty."
Mounkes, 204 F.3d at 1028; United States v. Slutsky, 487 F.2d
832, 842 (2d Cir. 1973); United States v. Normile, 587 F.2d 784, 785
(5th Cir. 1979); . Where a thorough government investigation does not
develop any evidence of cash on hand, it is proper to "use a cash on hand
figure of zero." United States v. Shields, 571 F.2d 1115, 1120-21
(9th Cir. 1978). In the final analysis, the existence of any cash on hand
presents a factual issue for determination by the jury. United States v.
Parks, 489 F.2d 89, 90 (5th Cir. 1974).
For an extended discussion of concepts relating to cash on hand,
reference should be made to Sections 31.06 and 31.07, supra.
33.09 REASONABLE LEADS
The government must investigate reasonable, relevant leads furnished
by a taxpayer, reasonably susceptible of being checked, which, if true,
would establish the taxpayer's innocence. United States v. Conaway,
11 F.3d 40, 43-44 (5th Cir. 1993); United States v. Ludwig, 897 F.2d
875, 882 (7th Cir. 1990); United States v. Hall, 650 F.2d 994, 1000
(9th Cir. 1981); United States v. Boulet, 577 F.2d 1165, 1169 (5th
Cir. 1978); United States v. Esser, 520 F.2d 213, 217 (7th Cir.
1975); United States v. Slutsky, 487 F.2d 832, 843 n.14 (2d Cir.
1973) ("[t]he contention that the 'leads' doctrine should be confined to a
net worth case is no longer tenable"); United States v.
Ramsdell, 450 F.2d 130, 132 (10th Cir. 1971); United States v.
Stein, 437 F.2d 775, 778 (7th Cir. 1971);).
If the government fails to investigate a reasonable lead timely
furnished by the defendant, the trial court may consider the defendant's
version as true and so instruct the jury. Hall, 650 F.2d at 1000;
see also Holland v. United States, 348 U.S. 121, 136
(1954). There is, however, a rule of reason and "the government's
investigators are not obliged to track down every conceivable lead offered
by the taxpayer to justify the non-income designation of a particular item."
Esser, 520 F.2d at 217. See Ludwig, 897 F.2d
at 882; United States v. Normile, 587 F.2d 784, 786 (5th Cir. 1979)
(agents not obliged to check every bank in the area nor to check every
deposit slip in taxpayer's account to find "lead" to wife's account);
United States v. Lenamond, 553 F. Supp. 852, 855, 860 (N.D. Tex.
1982) (agents obliged to check lead regarding correctness of reported
inventory figures, because lead was provided more than two years before
trial and was reasonably verifiable, and the reported inventory figures were
"astonishing" and "truly anomalous").
Leads furnished by a taxpayer must be both timely and reasonably
susceptible of being checked. Conaway, 11 F.3d at 43-44 ("We cannot
reasonably expect the government to find secret cash hoards without taxpayer
assistance."); Normile, 587 F.2d at 786 ("[t]he
government was not obliged to bay down rabbit tracks"); United States v.
Procario, 356 F.2d 614, 617 (2d Cir. 1966) (leads furnished "on the eve
of indictment" were too late);.
In considering questions concerning the reasonable leads doctrine,
reference should be made to Section 31.13, supra.
33.10 USE OF SUMMARY CHARTS AND SCHEDULES
In a bank deposits case, just as in a net worth case, at the close of
its case, the government calls to the stand a summary expert witness, who
summarizes the evidence and presents schedules reflecting the government's
bank deposits computation.
It is well established that a government agent can summarize the
evidence and present computations and schedules reflecting the bank deposits
computations. United States v. Soulard, 730 F.2d 1292, 1300 (9th Cir.
1984) (summary charts are not to be admitted in evidence or used by the jury
during deliberations but can be used as "testimonial aids" during the
agent's testimony and during closing arguments); United States v.
Esser, 520 F.2d 213, 217 (7th Cir. 1975); United States v. Morse,
491 F.2d 149, 152-53 (1st Cir. 1974); United States v. Stein, 437
F.2d 775, 780 (7th Cir. 1971) ("challenges advanced by defendant to the use
of such summaries have been long since considered and rejected by the
Supreme Court"); United States v. Lacob, 416 F.2d 756, 762 (7th Cir.
1969); Graves v. United States, 191 F.2d 579, 584 (10th Cir. 1951)
(government agent's schedule "was clearly admissible").
The agent's schedules must be based on evidence in the record and
should not contain captions that are "anymore conclusionary or impressive
than required to make the summaries understandable." Lacob, 416 F.2d
at 762; Esser, 520 F.2d at 218 ("record shows that the summary
witness relied only upon the evidence received during the trial and that he
was available for full cross-examination").
The testifying agent need not be involved in the investigation or
original preparation of the government's case. Thus, a "summary expert" can
be called to the witness stand to present the government's bank deposits
analysis as long as the witness is qualified as an expert. Soulard,
730 F.2d at 1299.
The same principles applicable to schedules and summaries in a net
worth case are also applicable in a bank deposits case. Stein, 437
F.2d at 780. Accordingly, reference should be made to Section 31.16,
supra, Sample Net Worth Schedule.
33.11 JURY INSTRUCTIONS
The defendant is "clearly entitled to a special explanatory charge"
when the government proceeds on the bank deposits method of proof. ;
United States v. Wiese, 750 F.2d 674, 678 (8th Cir. 1984) ("[w]hen
the government uses the bank deposit method, a trial court should instruct
the jury on the nuances of that method of accounting"); United States v.
Hall, 650 F.2d 994, 999 (9th Cir. 1981) ("comprehensive explanatory
instructions must be given when the bank deposits method of proof is used,
just as is required by Holland for the net worth method");
Greenberg v. United States, 295 F.2d 903, 907 (1st Cir. 1961).
For a sample bank deposits jury instruction, see the section on
jury instructions, infra.
33.12 SAMPLE BANK DEPOSITS COMPUTATION
Reproduced on the page which follows is a hypothetical bank deposits
summary computation. Note that ancillary schedules such as an analysis of
deposits are not included in the example.
SAMPLE BANK DEPOSITS SUMMARY COMPUTATION
Bank Deposits plus Cash Expenditures and Specific Items Not Deposited
1997 Tax Year
Total Bank (Brokerage) Account Deposits $100,675.00
Less: Nontaxable receipts
Transfers from other accounts $1,500.00
Redeposits (Bad checks) 200.00
Proceeds from borrowings (Loans) 1,000.00
Proceeds from repayment of loan 500.00
Gift 200.00
Inheritance 2,000.00
Other deposits - eliminated 1,500.00 -$ 6,900.00
Net Deposits $ 93,775.00
Plus: Cash expenditures $10,200.00
Specific Items of Income -Not Deposited 5,100.00
15,300
Gross Receipts $109,075.00
Less: Business Expenses *-21,000.00
Net Profit From Business $ 88,075.00
Less: Itemized deductions *-5,075.00
$ 83,000.00
Less: Exemptions (4) x $2,650 -10,600.00
Corrected Taxable Income $ 72,400.00
Less: Taxable Income per return -41,000.00
Unreported Taxable Income $ 31,400.00
* Generally determined from tax return filed. However, if investigation
establishes amounts greater than those claimed on return(s) the larger amounts
are used for criminal computation purposes.