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Balancing Books, Saving Time  - 
Precision for Your Peace of Mind.
  • Writer's pictureTim Kimble

Don't Let This Happen to You!!

UNEXPLAINED BANK DEPOSITS:


This case applies to any business—corporation or partnership—as well as to the sole proprietor involved in this case. The case. T ran several businesses as a proprietor. In an audit, the IRS determined that T had failed to report income and assessed additional taxes, interest, and penalties. Held: For the IRS. When a taxpayer’s records seem inaccurate or incomplete, the IRS’s reconstruction of income need only be reasonable considering all the surrounding facts and circumstances. The burden is on the taxpayer to prove that the IRS reconstruction is incorrect. The problem: The IRS examined the taxpayer’s bank deposits and included in gross income all deposits it could not attribute to nontaxable sources. The taxpayer had a chance to prove which deposits should not be included in gross income, but she did not have documentation to substantiate her claims. She explained why some deposits should not be taxed as income but could not support her statements. The result: All the unexplained deposits were treated as income. [Thompson v. Commissioner, T.C. Memo 2024-14]

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