Accurate Record Keeping Is A Must!

by Kenneth Hoffman in ,

In Carl J. Mistlebauer (T.C. Memo. 2012-186) the IRS determined that the taxpayer did not maintain adequate books and records for his business reported on a Schedule C.

The IRS used the bank deposits method to reconstruct the taxpayer's income. The Court noted a bank deposit is prima facie evidence of income and the IRS need not prove a likely source of that income. The taxpayer bears the burden of proving that IRS's determinations of income based on the bank deposits method are erroneous and may satisfy that burden by establishing that the deposits that remain at issue are derived from a nontaxable source.

According to the taxpayer, none of the deposits to his bank accounts that remained at issue for each of those years was taxable because the respective sources of those remaining deposits were loans, lines of credit, proceeds from the sale of all his investments, and IRA distributions. But the only support for his position was his own testimony, which the Court found to be general, conclusory, uncorroborated, and self-serving. The Court did not rely on the testimony and sided with the IRS in finding the taxpayer had unreported income.

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