BANK DEPOSITS METHOD OF PROVING UNREPORTED
INCOME - Method used by the IRS that proceeds
on the theory that if a taxpayer is engaged in an
income producing business or occupation and periodically
deposits money in bank accounts in his name or under
his control, an inference arises that such bank deposits
represent taxable income unless it appears that the
deposits represented re-deposits or transfers of funds
between accounts, or that the deposits came from non-taxable
sources such as gifts, inheritances or loans. This
theory also contemplates that any expenditures by
the person of cash or currency from funds not deposited
in any bank and not derived from a non-taxable source,
similarly raises an inference that such cash or currency
represents taxable income.
Because the 'bank deposits method' of proving unreported
income involves a review of the person's deposits
and cash expenditures which came from taxable sources,
the Government must establish an accurate cash-on-hand
figure for the beginning of the tax year. The proof
need not show the exact amount of the beginning cash-on-hand
so long as it is established that the Government's
claimed cash-on-hand figure is reasonably
