T.C. Summary Opinion 2009-54
UNITED STATES TAX COURT
DARLENE MARTINEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21379-07S. Filed April 21, 2009.
Darlene Martinez, pro se.
Kris H. J. An, for respondent.
LARO, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other
case.
1
Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code, and Rule
references are to the Tax Court Rules of Practice and Procedure.
Some dollar amounts are rounded.
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Petitioner petitioned the Court to redetermine respondent’s
determination of an $8,591 deficiency in her Federal income tax
for 2005. Following concessions, we decide whether petitioner
failed to report income of $20,248. We hold she failed to report
income of $5,248.
Background
Some facts were stipulated. The stipulated facts and the
accompanying exhibits are incorporated herein by this reference.
Petitioner resided in California when she petitioned the Court.
She filed a 2005 Form 1040, U.S. Individual Income Tax Return
(2005 return), using the filing status of “Head of household”.
From at least February through December 2005, petitioner was
employed full time as a housekeeper, and she was paid wages of
$11,940. She reported the same on her 2005 return. During 2005,
petitioner also performed janitorial services for two individuals
as an independent contractor. On her 2005 return, petitioner
reported $12,955 of gross income and $5,118 of net income from
her sole proprietorship.2 Petitioner reported no other income on
her 2005 return.
Respondent determined that petitioner lacked “adequate
records” for her sole proprietorship. Respondent therefore
obtained petitioner’s bank records and prepared a bank deposits
analysis in order to compute petitioner’s gross income. On the
basis of respondent’s analysis, respondent determined that
2
Petitioner now agrees that her net income is no less than
$8,628 because she was not entitled to deduct insurance and
gasoline expenses totaling $3,510.
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petitioner had $20,248 of unexplained deposits which respondent
then determined was unreported income. Petitioner acknowledges
that she received the $20,248 determined by respondent to be
unreported income.
During 2005, petitioner was the leader of a cundina.
Cundinas are informal savings plans in which many individuals in
the petitioner’s community regularly participate. In a cundina,
various participants in the plan entrust the leader with their
money for later return to the participants without addition or
subtraction. At various times during 2005, approximately 10
individuals entrusted their money to petitioner as the leader of
a cundina. Each participant was a good friend of petitioner’s or
a member of the friend’s extended family. Generally, each
participant transferred $100 to petitioner on an irregular basis
(e.g., sometimes weekly, sometimes semi-weekly, sometimes
monthly) primarily by depositing $100 into petitioner’s bank
account. A participant sometimes gave $100 directly to
petitioner, in which case petitioner deposited the $100 into her
bank account along with any other similar amounts that she had
recently received directly from the other participants. As of
the end of 2005, petitioner returned to that participant the full
amount of money that the participant had transferred to
petitioner.
Petitioner allowed each participant to use other
participants’ money without paying interest. In that case,
petitioner allowed one participant during each week to borrow
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funds from the cundina corpus in increments of $100 up to a
maximum of $1,000. Each participant who borrowed money from the
cundina paid back his or her borrowing over a maximum of 10 weeks
through his or her transfers of $100 to petitioner.
During 2005, the participants in the cundina transferred
$15,000 to petitioner, and petitioner returned all of that amount
to the participants. Petitioner received no compensation for
serving as the leader of the cundina.
Discussion
The bank deposits method for computing unreported income has
long been sanctioned by the judiciary. See Factor v.
Commissioner, 281 F.2d 100, 116 (9th Cir. 1960), affg. T.C. Memo.
1958-94; DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd.
959 F.2d 16 (2d Cir. 1992). Bank deposits are prima facie
evidence of income. See Tokarski v. Commissioner, 87 T.C. 74, 77
(1986). Where a taxpayer has failed to maintain adequate records
as to the amount and source of his or her income and the
Commissioner has determined that the deposits are income, the
taxpayer bears the burden of proving that the Commissioner’s
determination is incorrect. Petitioner therefore bears the
burden of proving that none of the $20,248 was income to her.
Petitioner claims that the $20,248 is not income to her
because it is attributable to the cundina in which she was the
leader. Respondent disputes this claim, arguing that no
correlation exists between the deposits into and withdrawals out
of petitioner’s bank account that would support petitioner’s
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claim. Respondent concedes, however, that petitioner should
prevail if we believe that she and her primary witness, a
participant in the cundina, testified credibly.
Petitioner and her witness testified credibly and without
contradiction as to events occurring during 2005. Petitioner
testified that she regularly received $100 from the various
individuals who participated in the cundina for which she was the
leader and that she returned to each participant any cash that
she received from the participant. The witness testified that
she participated at least twice in the cundina of which
petitioner was the leader and that each time the witness
transferred to and received back from petitioner the same amount
of money. The witness also explained that she transferred her
money to petitioner so that the money would not be easily
accessible to the witness to spend. The witness identified by
name three other participants in the cundina and identified
various other participants by description.
The record also includes credible documentary support for
the referenced testimony. Petitioner’s bank statements for 2005
show 80 deposits totaling $15,000, each in the separate amount of
$100 or an increment of $100. The bank statements also show 96
withdrawals in like amounts totaling just slightly more than
$15,000.
We hold that $15,000 of the $20,248 of unreported income
determined by respondent was attributable to petitioner’s
receipts and disbursements of other people’s money. We thus hold
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that $15,000 of the $20,248 is not unreported income. As to the
remaining $5,248 determined by respondent to be unreported income
($20,248 - $15,000 = $5,248), petitioner has failed to prove that
any of the $5,248 was attributable to a nontaxable source. We
thus sustain respondent’s determination as to the $5,248.
Decision will be entered
under Rule 155.