IRS Can Use Bank Deposit Method to Reconstruct Income

If a business fails to keep books and records, the IRS can look to bank deposits to figure business income. That’s what happened to a person with a real estate business who failed to file a return and didn’t maintain records of income and expenses. The Tax Court approved the IRS’s motion for partial summary judgment. Where there are unexplained bank deposits, the IRS can use the bank deposits method to estimate income. Unless a taxpayer can provide proof that deposits are other than income, they become taxable. #IdeaoftheDay