If a taxpayer does not keep accurate books and records establishing gross income, the IRS may determine it under a prescribed method that clearly reflects income (Sec. 446(b); Petzoldt, 92 T.C. 661 (1989)). One such method is a bank deposits analysis. In reconstructing income, the IRS “need only be reasonable in light of all surrounding facts and circumstances,” the Tax Court stated, citing Petzoldt.
The Tax Court further stated that the bank deposits analysis presumes that any money placed in a taxpayer’s bank account is taxable income unless the taxpayer proves otherwise.
