                        T.C. Memo. 1997-383



                      UNITED STATES TAX COURT



                  EVA J. MADIGAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20371-94.                     Filed August 21, 1997.



     B. Gray Gibbs, for petitioner.

     J. Scot Simpson, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WRIGHT, Judge:   Respondent determined a deficiency of

$20,238 in petitioner's Federal income tax for taxable year 1991.

Respondent further determined that petitioner is liable for

additions to tax under sections 6651(a)1 and 6654 in the amounts


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the year at issue, and
                                                   (continued...)
                               - 2 -

of $4,999 and $1,148, respectively.    After concessions, the sole

issue for decision is whether respondent has connected certain

bank deposits that petitioner made in 1991 to a likely source of

income.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and attached exhibits are incorporated

herein.   Petitioner resided in St. Petersburg, Florida, at the

time she filed the petition in this case.

     Petitioner failed to file a Federal income tax return for

taxable year 1991.   As a result, respondent prepared a substitute

return for petitioner and subsequently issued a corresponding

notice of deficiency on August 9, 1994.     Only one issue remains

unresolved, and it involves bank deposits that respondent

identified during an analysis of petitioner's bank accounts.

Respondent raised this issue by asserting an increased deficiency

based on unexplained bank deposits as discussed below.

     While conducting the above-mentioned bank deposits analysis,

respondent identified unexplained deposits totaling $30,212.

Respondent subsequently concluded that most of these deposits

were explained and reduced this amount to $2,808.35.    The

deposits remaining at issue consist exclusively of checks and

were made to an account entitled "Madigan and Company".    The


     1
      (...continued)
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                       - 3 -

following table lists the checks that constitute the disputed

deposits:

      DATE       PAYEE             MAKER            AMOUNT      NOTATIONS
    of CHECK    of CHECK          of CHECK         of CHECK     on CHECK


    1/21/91    Eva Madigan      Nancy Burley       $   50.00    Payroll
                                                                Bookkeeping
                                                                12/**/901
    1/31/91    Madigan &        Nancy Burley           50.00      ---
               Company
    4/15/91    Madigan and      Nancy Burley           50.00    1st Quarter
               Company                                          Payroll tax
                                                                Bookkeeping
    5/15/91    Madigan &        Nancy Burley           50.00    April 91
               Company                                          Payroll
                                                                Taxes
    6/24/91    Madigan &        Nancy Burley           50.00    Payroll Tax
               Company                                          Accounting
    7/13/91    Madigan and      Nancy Burley           50.00       ---
               Company
    8/31/91    Madigan &        Nancy Burley           50.00    Payroll
               Company                                          bookkeeping
    9/16/91    Madigan & Co.    Nancy Burley           50.00    Sept 91
                                                                Bookkeeping
    11/15/91   Madigan & Co.    Nancy Burley           50.00    Bookkeeping
    12/6/91    Madigan & Co.    Nancy Burley           50.00    Bookkeeping
    5/23/91    Eva Madigan      Judith A. White        425.00   1990 Tax
                                                                Prep.
    **/**/91   Eva Madigan      Judith A. White        225.00      ---
    2/15/91    Eva Madigan      Prudential-Bache       858.35      ---
    4/5/91     Eva Madigan      Vickie Conant          600.00      ---
    **/**/**   Eva J. Madigan   Ted Elcross            200.00      ---


               Total                               $2,808.35


1
 Asterisks indicate illegible writing contained in the record.
                               - 4 -

                              OPINION

     Section 61(a) defines gross income as "all income from

whatever source derived".   Sec. 61(a)(1).   This definition

includes all accessions to wealth that are clearly realized and

over which a taxpayer has complete dominion.     Commissioner v.

Glenshaw Glass Co., 348 U.S. 426, 431 (1955).

     The propriety of the bank deposits method of income

reconstruction is well established.     Parks v. Commissioner, 94

T.C. 654, 658 (1990); Nicholas v. Commissioner, 70 T.C. 1057,

1064 (1978); Estate of Mason v. Commissioner, 64 T.C. 651,

656-657 (1975), affd. 566 F.2d 2 (6th Cir. 1977); Harper v.

Commissioner, 54 T.C. 1121, 1129 (1970).     In general, bank

deposits are prima facie evidence of income, Marcello v.

Commissioner, 380 F.2d 494, 496-497 & n.4 (5th Cir. 1967);

Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Estate of Mason

v. Commissioner, supra, and the taxpayer must normally refute the

Commissioner's determination that such deposits stem from

unreported income.   Rule 142(a); Welch v. Helvering, 290 U.S.

111, 115 (1933).   However, when the Commissioner has the burden

of proof, bank deposits by themselves do not give rise to a

"logical presumption" that they are income.     Armes v.

Commissioner, 448 F.2d 972, 974 (5th Cir. 1971), affg. in part

and remanding in part T.C. Memo. 1969-181.    Under this

circumstance, the Commissioner may either connect the bank

deposits to a likely source of income or, where the taxpayer
                                - 5 -

alleges a nontaxable source, negate each nontaxable source

alleged by the taxpayer.    United States v. Massei, 355 U.S. 595

(1958); Holland v. United States, 348 U.S. 121, 137-138 (1954);

Armes v. Commissioner, supra; Parks v. Commissioner, supra at

661.    If the Commissioner connects the bank deposits to a likely

source of income, the finder of fact may properly conclude that

such deposits are income.    Holland v. United States, supra; Armes

v. Commissioner, supra.

       Respondent has the burden of proof in the instant case

because the issue before us pertains to an increased deficiency.

Rule 142(a).    Moreover, because petitioner does not contend that

the deposits at issue stem from a nontaxable source, respondent

must connect the deposits to a likely source of income in order

to satisfy the burden of proof.

       Respondent maintains that a preponderance of the evidence

indicates that the deposits at issue stem from a taxable source

of income.    Specifically, it is respondent's contention that

petitioner conducted a bookkeeping business during 1991, and that

the deposits were made with checks that petitioner received in

exchange for services that she performed in connection with that

business.    As support for this argument, respondent explains that

the checks at issue were deposited into petitioner's "business"

bank account.    Respondent also explains that a majority of the

checks at issue were made payable to petitioner's business and
                                 - 6 -

contain notations that indicate that such checks constitute

payment for services rendered.2

     Petitioner's sole argument is that respondent has failed to

carry the burden of proof.3

     We agree with respondent but only with respect to the checks

drawn by Nancy Burley (Ms. Burley) and Judith White (Ms. White).

There is little doubt that the bank account involved in this case

was a "business" account.     However, establishing that petitioner

deposited the checks at issue into a business account is not

sufficient to satisfy respondent's burden, and it does not

convince us that the deposits were likely made from a taxable

source of income.   But the size and frequency of the checks drawn

by Ms. Burley indicate a regular source of cash which is

consistent with the operation of a service-oriented business,

such as a bookkeeping service.    Moreover, nine of the checks

drawn by Ms. Burley were made payable to "Madigan and Company,"

or a variation thereof, and not to petitioner personally.

Additionally, eight of the checks drawn by Ms. Burley contain

notations that suggest that such checks were issued as payment


     2
      Respondent advances several other arguments in support of
the contention that the deposits at issue represent taxable
income to petitioner. However, because these arguments are
significantly less persuasive than respondent's arguments with
respect to the type of account involved, the payee, and the
markings contained on the checks at issue, we decline to discuss
them.
     3
      Petitioner does not address the individual deposits at
issue and does not contend that such deposits stem from a
nontaxable source.
                               - 7 -

for services rendered.   When we consider these three additional

facts in conjunction with the fact that petitioner deposited the

checks drawn by Ms. Burley into the above-mentioned business

account, we have little trouble concluding that respondent has

connected these checks to a likely source of taxable income.

Petitioner failed to offer any evidence to the contrary.

     We reach the same conclusion with respect to the two checks

drawn by Ms. White.   Although the evidence in the record

regarding the checks drawn by Ms. Burley is more convincing than

the evidence in the record regarding the checks drawn by Ms.

White, the latter evidence is sufficiently persuasive, and we

conclude that respondent has adequately linked the checks drawn

by Ms. White to a likely source of taxable income.   Petitioner

failed to offer any evidence to the contrary.

     We reach a different conclusion, however, with respect to

the checks that petitioner received from Vickie Conant (Ms.

Conant), Ted Elcross (Mr. Elcross), and Prudential-Bache.   Each

of these checks was made payable to petitioner personally and

none contains markings that suggest that it was received in

exchange for services rendered.   All that is certain is that

petitioner deposited these checks into her business bank account.

As we noted above, however, this alone is not sufficient to

persuade us that these deposits stem from a likely source of

taxable income.   The connection proffered by respondent is too

tenuous.
                                 - 8 -

     Accordingly, we conclude that respondent has carried the

burden of proof with respect to the checks issued by Ms. Burley

and Ms. White, but that respondent has not similarly carried the

burden of proof with respect to the checks that petitioner

received from Ms. Conant, Mr. Elcross, and Prudential-Bache.

     To reflect the foregoing,

                                              Decision will be

                                         entered under Rule 155.
