Bank Deposits

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Bank Deposits

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33.00 BANK DEPOSITS

Updated June 2001

33.01 GENERALLY

33.01[1] Consistently Approved Method of Proof

33.01[2] Used Alone or With Other Methods

33.01[3] Cross Reference


 
33.02 PRELIMINARY FOUNDATION FOR USE


 
33.03 BUSINESS OR INCOME-PRODUCING ACTIVITY


 
33.04 ANALYSIS OF DEPOSITS

33.04[1] Generally

33.04[2] Currency Deposits

33.04[3] Missing or Incomplete Bank Records


 
33.05 ELIMINATION OF NON-INCOME ITEMS

33.05[1] Generally

33.05[2] Proof of Non-Income Items

33.05[3] Good Faith Errors


 
33.06 UNIDENTIFIED DEPOSITS


 
33.07 BANK DEPOSITS PLUS UNDEPOSITED CURRENCY EXPENDITURES

33.07[1] Generally

33.07[2] Amount of Cash Expenditures


 
33.08 CASH ON HAND

33.08[1] Generally

33.08[2] Proof Of Cash On Hand


 
33.09 REASONABLE LEADS


 
33.10 USE OF SUMMARY CHARTS AND SCHEDULES


 
33.11 JURY INSTRUCTIONS


 
33.12 SAMPLE BANK DEPOSITS COMPUTATION


 



                         

                         33.01 GENERALLY


 
      The bank deposits method of proof is one of the primary indirect 

methods of proof used by the government in computing taxable income.  

United States v. Boulet, 577 F.2d 1165 (5th Cir. 1978), contains a 

good description of the mechanics of a bank deposits computation:


 
      To prove its charges, the government relied upon one of the two 

      traditional indirect methods of proof, analysis of the taxpayer's bank 

      deposits and cash expenditures.  Under  this method, all deposits to 

      the taxpayer's bank and similar accounts in a single year are added 

      together to determine the gross deposits.  An effort is made to 

      identify amounts deposited that are non-taxable, such as gifts, 

      transfers of money between accounts, repayment of loans and cash that 

      the taxpayer had in his possession prior to that year that was 

      deposited in a bank during that year.  This process is called 

      "purification."  It results in a figure called net taxable bank 

      deposits.


 
           The government agent then adds the amount of expenditures made in 

      cash, for example, in this case, cash the doctor received from fees, 

      did not deposit, but gave to his wife to buy groceries.  The total of 

      this amount and net taxable bank deposits is deemed to equal gross 

      income. This is in turn reduced by the applicable deductions and 

      exemptions.  The figure arrived at is considered to be "corrected 

      taxable income."  It is then compared with the taxable income reported 

      by the taxpayer on his return.


 
Boulet, 577 F.2d at 1167.


 
      The bank deposits method of proof has certain features in common with 

the net worth method of proof.  See Section 31.00, supra.  

Both methods are approximations which seek to show by circumstantial means 

that the taxpayer had income that was not reported.  

Holland

 v. United 

States, 348 
U.S.
 121, 129 (1954); 

United States

 v. Hall, 650 F.2d 

994, 999 (9th Cir. 1981); 

United States

 v. Bray, 546 F.2d 851, 856 

(10th Cir. 1976) ("the bank deposits method of proof is not an exact 

science").


 
      However, unlike the net worth method, which considers year-end bank 

balances, as well as asset acquisitions and liabilities,  the focus in a 

bank deposits case is on funds deposited during the tax year.  Although "the 

mechanics of arriving at an income figure are different, both methods 

involve similar underlying assumptions and afford much of the same 

inferences for and against the accused."  Hall, 650 F.2d at 999.


 

 
33.01[1] Consistently Approved Method of Proof


 
      The bank deposits method of proof was approved in Gleckman v. 



United States

, 80 F.2d 394 (8th Cir. 1935).  Since that time, the bank 

deposits method of proof has "received consistent judicial approval."  



United States

 v. Morse, 491 F.2d 149, 151 (1st Cir. 1974). See 



United States

 v. Mounkes, 204 F.3d 1024, 1028 (10th Cir.), cert. 

denied, 530 

U.S.

 1230 (2000); United States v. Conaway, 11 F.3d 

40, 43- 44 (5th Cir. 1993); 

United States

 v. Ludwig, 897 F.2d 875, 

878 (7th Cir. 1990); 

United States

 v. Abodeely, 801 F.2d 1020, 1023 

(8th Cir. 1986); 

United States

 v. Stone, 770 F.2d 842, 844 (9th Cir. 

1985); 

United States

 v. Tafoya, 757 F.2d 1522, 1528 (5th Cir. 

1985); 

United States

 v. Soulard, 730 F.2d 1292, 1296 (9th Cir. 1984); 



United States

 v. Hall, 650 F.2d 994, 999 (9th Cir. 1981); United 

States v. Vannelli, 595 F.2d 402, 404 (8th Cir. 1979); 

United States

 

v. Normile, 587 F.2d 784, 785 (5th Cir. 1979); 

United States

 v. 

Helina, 549 F.2d 713, 720 (9th Cir. 1977); 

United States

 v. Bray, 

546 F.2d 851, 853 (10th Cir. 1976); 

United States

 v. Horton, 526 F.2d 

884, 887 (5th Cir. 1976); 

United States

 v. Esser, 520 F.2d 213, 216 

(7th Cir. 1975); 

United States

 v. Parks, 489 F.2d 89, 90 (5th Cir. 

1974); 

United States

 v. Slutsky, 487 F.2d 832, 840 (2d Cir. 1973); 



United States

 v. Stein, 437 F.2d 775, 779 (7th Cir. 1971); United 

States v. Lacob, 416 F.2d 756, 759 (7th Cir. 1969); 

United States

 v. 


Mansfield
, 381 F.2d 961, 965 (7th Cir. 1967); 

United States

 v. 

Moody, 339 F.2d 161, 162 (6th Cir. 1964); Morrison v. United 

States, 270 F.2d 1, 2 (4th Cir. 1959); 

United States

 v. Nunan, 

236 F.2d 576, 587 (2d Cir. 1956); 

United States

 v. Venuto, 182 F.2d 

519, 521 (3d Cir. 1950); Skinnett v. 

United States

, 173 F.2d 129 (4th 

Cir. 1949);  see also 

United States

 v. Black, 843 

F.2d 1456, 1458 (D.C. Cir. 1988) (recognized bank deposits method in order 

to distinguish it from the specific items method used in that case).


 

 
33.01[2] Used Alone or With Other Methods


 
      Proof of unreported income by the bank deposits method alone is 

sufficient. It is not necessary to use another method of proof as 

corroboration. 

United States

 v. Stein, 437 F.2d 775, 779 (7th Cir. 

1971), and cases cited.


 
      The bank deposits method can, however, be used as corroboration of 

other methods of proof.  See 

United States

 v. Tafoya, 757 F.2d 

1522, 1528 (5th Cir. 1985), where the primary method of proof was the 

specific items method and "bank deposits evidence was admitted only to 

corroborate the evidence of specific payments."  Similarly, in United 

States v. Horton, 526 F.2d 884, 887 (5th Cir. 1976), a specific items 

prosecution, "evidence of total bank deposits during the years in question 

was properly admissible as corroborative evidence."  Where the bank deposits 

method of proof is used as corroboration, however, the jury should be 

instructed to limit its consideration of the bank deposits evidence to 

corroboration of the other method of proof.  Tafoya, 757 F.2d at 

1528; Horton, 526 F.2d at 887.


 
      In 

United States

 v. Hall, 650 F.2d 994, 996-97 (9th Cir. 1981), 

"the prosecution elicited testimony from its experts establishing 

appellants' income by both the 'net worth' and the 'bank deposits' methods 

of proof."  The conviction was reversed, not because two methods of proof 

were used, but because of a failure to give explanatory instructions to the 

jury on the indirect methods of proof used by the government.  Hall, 

650 F.2d at 999.


 
      Many cases use the bank deposits method of proof in conjunction with 

the specific items method.  For example, in 

United States

 v. 

Procario, 356 F.2d 614, 616 (2d Cir. 1966):


 
      The government relied for proof partly on direct evidence from 

      patients and their cancelled checks, and partly on the bank deposit 

      method, modified so as to yield the rest of appellant's professional 

      income.


 
Procario, 356 F.2d at 616.


 
      See also United States v. Nunan, 236 F.2d 576, 

582, 586 (2d Cir. 1956), where the government introduced evidence in the 

form of the bank deposits method of proof and also introduced evidence of 

specific items of taxable income which had been omitted from the defendant's 

returns -- "proof relative to the specific items of taxable income which 

were omitted from the returns in the light of the evidence as a whole was of 

itself sufficient to support the verdict."  Nunan, 236 F.2d at 586.


 

 
33.01[3] Cross Reference


 
      It will help in understanding the discussion of the bank deposits 

method of proof which follows if reference is made to the sample bank 

deposits computation reproduced in Section 33.12, infra.


 
      Reference also should be made to Section 31.00, supra, treating 

the net worth method of proof since, as noted above, a number of the 

underlying assumptions in the bank deposits method of proof are the same as 

those in the net worth method of proof.


 
      Finally, reference should be made to the Manual section, supra, 

on the specific violation under consideration, since the bank deposits 

method of proof merely concerns the computation of income and not the other 

elements of a given offense.


 



 

33.02 PRELIMINARY FOUNDATION FOR USE


 
      The classic bank deposits case is Gleckman v. United States, 80 

F.2d 394 (8th Cir. 1935).  As noted in Gleckman, "the bare fact, 

standing alone, that a man has deposited a sum of money in a bank would not 

prove that he owed income tax on the amount; nor would the bare fact that he 

received and cashed a check for a large amount, in and of itself, suffice to 

establish that income tax was due on account of it." Id. at 399.  The 

court in Gleckman went on to describe the foundation for using the 

bank deposits method of proof as follows:


 
      On the other hand, if it be shown that a man has a business or calling 

      of a lucrative nature and is constantly, day by day and month by 

      month, receiving moneys and depositing them to his account and 

      checking against them for his own uses, there is most potent testimony 

      that he has income, and, if the amount exceeds exemptions and 

      deductions, that the income is taxable.


 
Gleckman, 80 F.2d at 399. 


 
      The teaching of Gleckman and its progeny is that to use the 

bank deposits method of proof, the government must initially introduce 

evidence showing that:


 
      1.    The taxpayer was engaged in a business or income-producing 

            activity from which the jury can infer that the unreported 

            income arose;


 
      2.    Periodic and regular deposits of funds were made into accounts 

            in the taxpayer's name or over which the taxpayer had dominion 

            and control;


 
      3.    An adequate and full investigation of those accounts was made in 

            order to distinguish between income and non-income deposits;


 
      4.    Unidentified deposits have the inherent appearance of income, 

            e.g., the size of the deposits, odd or even amounts, 

            fluctuations in amounts corresponding to seasonal fluctuations 

            of the business involved, source of checks deposited, dates of 

            deposits, accounts into which deposited, etc.


 
United States v. Abodeely, 801 F.2d 1020, 1023 (8th Cir. 1986); 

United States v. Stone, 770 F.2d 842, 844 (9th Cir. 1985); United 

States v. Helina, 549 F.2d 713, 720 (9th Cir. 1977); United States v. 

Morse, 491 F.2d 149, 152 (1st Cir. 1974); United States v. 

Slutsky, 487 F.2d 832, 841-42 (2d Cir. 1973); United States v. 

Venuto, 182 F.2d 519, 521 (3d Cir. 1950).


 



 

33.03 BUSINESS OR INCOME-PRODUCING ACTIVITY


 
      In the first instance, it must be shown that during the tax years in 

question the taxpayer was engaged in an income-producing business or 

calling. This is relatively simple and ordinarily does not present a problem 

-- the taxpayer was or was not involved in an income-producing activity.


 
      As can be imagined, the cases involve a wide range of  

income-producing activities, including, for example:  attorney, politician, 

and former Commissioner of Internal Revenue, United States v. Nunan, 

236 F.2d 576, 579 (2d Cir. 1956); personal injury attorney, United States 

v. Lacob, 416 F.2d 756, 758 (7th Cir. 1969); doctors, United States 

v. Boulet, 577 F.2d 1165, 1167 (5th Cir. 1978), and United States v. 

Esser, 520 F.2d 213, 215 (7th Cir. 1975); partners in a resort hotel in 

the Catskill Mountains, United States v. Slutsky, 487 F.2d 832, 835 

(2d Cir. 1973); dealer in wholesale meat, United States v. Stein, 437 

F.2d 775, 776 (7th Cir. 1971); operator of a retail meat store, 

slaughterhouse, and rental properties, United States v. Venuto, 182 

F.2d 519, 520 (3d Cir. 1950); retailers, United States v. Hall, 650 

F.2d 994, 996 (9th Cir. 1981), and Graves v. United States, 191 F.2d 

579, 581 (10th Cir. 1951); seller of ice cream franchises, United States 

v. Soulard, 730 F.2d 1292, 1296 (9th Cir. 1984); operator of a gambling 

casino, Percifield v. United States, 241 F.2d 225, 226 (9th Cir. 

1957); and, dealer in gravestones, United States v. Fowler, 605 F.2d 

181, 182 (5th Cir. 1979).


 
      The income-producing business can be an illegal activity, e.g., 

bribes, Malone v. United States, 94 F.2d 281, 287-88 (7th Cir. 1938); 

prostitution, United States v. Abodeely, 801 F.2d 1020, 1025 (8th 

Cir. 1986); embezzlement, United States v. Vane attempted 

assassinations, United lli, 595 F.2d 402, 406 (8th Cir. 1979); and, 

income from States v. Tafoya, 757 F.2d 1522, 1526-27 (5th Cir. 1985).  

Caution must be exercised, however, in the use and presentation of evidence 

relating to an illegal source of income.  See Section 31.12(3), 

supra, Illegal Sources of Income.


 



 

33.04 ANALYSIS OF DEPOSITS


 
33.04[1] Generally


 
      The basic underlying assumption in the bank deposits method of proof 

is that if a taxpayer is in an income-producing activity, and regularly and 

periodically makes deposits to bank accounts, then those deposits, after 

adjustments, constitute taxable income.  United States v. Morse, 491 

F.2d 149, 152 (1st Cir. 1974); Gleckman v. United States, 80 F.2d 

394, 399 (8th Cir. 1935).


 
      Heavy reliance is placed on an analysis of deposits in establishing a 

relationship between the deposits and the income-producing activity.  The 

composition of each deposit is determined, to the extent possible, based on 

obtainable bank records, third-party records, and any admissions of the 

taxpayer.


 
      The government then generally shows by direct evidence that a number 

of the deposited items are, in fact, taxable receipts.  The number so 

verified varies from case to case.  See, e.g., United 

States v. Venuto, 182 F.2d 519, 520 (3d Cir. 1950), where, in addition 

to the government introducing evidence that receipts from defendant's 

businesses were deposited regularly and currently, government agents 

testified that they analyzed the bank accounts, and defendant's check stubs 

and cancelled checks, verifying through third-party suppliers, actual 

purchases of merchandise bought for sale. In addition, the defendant's real 

estate income was verified through statements of receipts and disbursements 

prepared by the real estate firm that managed the defendant's business.  

See also United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 

1993);  United States v. Esser, 520 F.2d 213, 217 (7th Cir. 1975).


 
      There is, however, no fixed requirement that the government verify a 

certain percentage of the defendant's deposits as income items.  All that 

the government has to prove is that the defendant was engaged in an 

income-producing business, that regular deposits of funds having the 

appearance of income were in fact made to bank accounts during the year in 

question, and that the government did everything that was fair and 

reasonable to identify and deduct any non-income items.  Esser, 520 

F.2d at 217.  Obviously, the jury may feel more comfortable with a higher 

percentage of verified deposits.


 
      For an example of an investigation involving a sampling of total 

deposits, see United States v. Stone, 770 F.2d 842, 844 (9th 

Cir. 1985), involving a doctor, where Internal Revenue Service agents 

obtained bank copies of signature cards, monthly statements, and deposit 

slips, and contacted a number of insurance companies requesting copies of 

checks issued to the defendant for medical services and claim forms 

submitted for medical services. The agents then analyzed the bank records of 

the checks deposited into the defendant's accounts:


 
      In order to discover what portion of Stone's total deposits 

      represented payment for medical services rendered, the IRS selected 12 

      large deposits -- one for every other month in 1976  and 1977 -- as a 

      representative sample, and had the bank produce a copy of every check 

      deposited with those deposits.


 
            The IRS attempted to verify that these checks were payments for 

      medical services rendered by writing or calling the makers of the 

      checks. Although the IRS was only able to verify a small portion of 

      the checks, almost all the checks so verified in the sampling process 

      were payments for medical services.  Checks that were for nonincome 

      items were identified by the IRS and excluded from gross receipts from 

      the medical practice.


 
Stone, 770 F.2d at 844.


 
 

33.04[2] Currency Deposits


 
      The usual bank deposits case will involve a mixture of check and cash 

deposits.  If the case does include currency deposits, then any cash 

withdrawals or checks made payable to cash or to the taxpayer and 

subsequently cashed must be deducted from the total amount of deposits, 

unless it can be shown that the cash withdrawals and the checks cashed were 

not used to make the currency deposits.  If the taxpayer is not given credit 

under these circumstances for such potential redeposits, a duplication can 

result, yielding an inflated figure for taxable income.


 
      For example, assume that during the year the taxpayer earned $25,000, 

which is in the form of $15,000 in checks and $10,000 in cash, all of which 

was deposited in the taxpayer's bank account.  Assume further that during 

the year the taxpayer made out checks to cash totalling $7,000 and deposited 

the resulting cash into the account.  The total amount of deposits would be 

$32,000 ($25,000 plus $7,000), indicating gross receipts of $32,000.  This 

inflated amount is caused by a duplication -- the $7,000 was counted when it 

was deposited initially and again when it was redeposited, after having been 

withdrawn.  In the example given, it would be necessary to deduct $7,000 

from the total deposits in order to prevent duplication, i.e., 

$32,000 minus $7,000 equals $25,000, which is what the taxpayer earned.  

Note that if the taxpayer had issued checks to cash totaling only $3,000, 

then it would be necessary to subtract only $3,000 from total deposits, 

since $3,000 would be the maximum amount of currency that could have been 

redeposited.


 
      Additionally, if the taxpayer had checks to cash totalling $12,000, 

then it would not be necessary to subtract that amount.  At most, $10,000 

could have been redeposited, since that was the total amount of currency 

deposits for the year, and only $10,000 need be subtracted.  However, this 

situation would leave the taxpayer with an additional $2,000 in cash that 

could be redeposited in a subsequent year and create a duplication.  If the 

$2,000 cannot be accounted for in an expenditure and the taxpayer has 

currency deposits in the following year, then this $2,000 may have to be 

subtracted from total currency deposits the following year depending on the 

circumstances of the case.


 
      On the other hand, there would be no duplication and no need to 

subtract cash withdrawn from the total of the deposits if there were no 

currency deposits made during the year, since any checks to cash were 

obviously not cashed and deposited in the account.  And even where there are 

currency deposits, it is still not necessary to subtract cash withdrawals 

from the total currency deposits if the resulting cash can be traced to a 

use other than the redepositing of the funds.  Thus, if it can be shown that 

all currency deposits for the year precede the dates of any cash withdrawals 

or checks to cash, then no elimination is required.  The timing establishes 

that the source of the currency deposits must have been funds other than 

those withdrawn from the account.  In a similar fashion, no elimination of 

currency deposits is necessary if it can be shown that cash withdrawals were 

used for specific purposes (e.g., food, clothing, etc.), and thus 

were not funds redeposited in the taxpayer's bank account. See 

Beard v. United States, 222 F.2d 84, 87-88 (4th Cir. 1955).


 
      Although United States v. Caserta, 199 F.2d 905 (3d Cir. 1952), 

is an expenditures case, the principles discussed are applicable to a bank 

deposits case.  Caserta contains an excellent explanation of the 

duplication that can result in an expenditures case where deposits and 

withdrawals are not properly accounted for.  In the words of the court:


 
      If a man has a bank account and puts everything he receives into the 

      account, his expenditures are pretty well shown by what he spends it 

      for in checking it out.  But suppose he withdraws from his bank 

      account a sum in cash, a check made payable to himself or an 

      impersonal payee.  Does that show expenditure?  It may well do so if 

      we proceed on the ordinary assumption that people do not draw money 

      from bank accounts unless they are going to spend the money for 

      something.  On the other hand, suppose a man writes a check to "cash" 

      for $500. and the same day buys an overcoat for  $100. and a suit of 

      clothes for the same amount.  Now what do we charge him with, an 

      expenditure of $700.? If cash withdrawals from a bank account are to 

      be treated as cash receipts to a person, surely it is incorrect to 

      charge individual items for which he has paid cash to his list of 

      expenditures unless it is shown that the cash bank withdrawals had 

      nothing to do with the individual items.  Otherwise, a man doubles his 

      taxable income when he writes a check for "cash" and spends the money 

      he gets from his bank. This would be a very happy way of increasing 

      one's income if it could be done.


 
Caserta, 199 F.2d at 907.


 
      For the same reasons given in the Caserta case, it is error to 

charge a taxpayer in a bank deposits case with currency deposits, unless it 

can be shown that the source of the currency deposits was not funds 

withdrawn from the taxpayer's bank account.


 
 

33.04[3] Missing or Incomplete Bank Records


 
      An effort obviously should be made to obtain all of the bank records 

for a given year.  This is not always possible.  The effect of missing or 

unavailable records will depend on the nature of the missing records, and 

whether a thorough government investigation and analysis can overcome the 

gap in records.


 
      In Beard v. United States, 222 F.2d 84 (4th Cir. 1955), there 

were currency deposits made to one of the defendant's accounts, and the 

government agents were unable to identify withdrawals from this account 

since they did not have access to the defendant's cancelled checks.  In 

affirming the conviction, the court pointed out that the agents conducted an 

"exhaustive search to ascertain what deductions should be made for possible 

duplications, business expenses, and amounts not attributable to the 

defendant's gambling operations" and, in addition, an extensive 

investigation was conducted to demonstrate the source of deposited items.  

Beard, 222 F.2d at 86-88.


 
      In United States v. Esser, 520 F.2d 213, 216 (7th Cir. 1975), 

"it was virtually impossible to introduce the deposit slips due to their 

poor quality, unreliability, and unavailability."  The government introduced 

the bank statements and passbooks as the most reliable evidence available.  

On cross-examination, the defendant attempted to establish that the deposit 

slips and underlying items were capable of retrieval.  The question was left 

as one of fact for the jury.  The court rejected the argument that a failure 

by the government to specifically identify and analyze the defendant's 

deposit slips and underlying items was fatal to the government's case.  The 

full investigation of the deposits and underlying items, and the taking of 

reasonable steps to identify and deduct non-income items was sufficient.  

Esser, 520 F.2d at 217.  Accord United States v. 

Abodeely, 801 F.2d 1020, 1025 (8th Cir. 1986).


 
      A similar argument was rejected in United States v. Soulard, 

730 F.2d 1292, 1297 (9th Cir. 1984), where the defendant argued that the 

trial court erroneously admitted the government's bank deposits analysis 

because the government failed to establish that it had introduced into 

evidence complete sets of the defendant's bank records.  The court rejected 

the argument, holding that the issue of the completeness of bank records 

goes to the jury's determination of the weight of the evidence, not its 

admissibility.  Soulard, 730 F.2d at 1298.  Cf. United 

States v. Stone, 770 F.2d 842, 844-45 (9th Cir. 1985) (IRS selected 

twelve large deposits as a representative sample, and had the bank produce a 

copy of every check deposited with those deposits).


 



 

33.05 ELIMINATION OF NON-INCOME ITEMS


 
33.05[1] Generally


 
      An adequate and full investigation of the taxpayer's accounts must be 

conducted to distinguish between income and non-income deposits to support 

the inference that the unexplained excess in deposits is currently taxable 

income. United States v. Lawhon, 499 F.2d 352, 356 (5th Cir. 

1974); United States v. Morse, 491 F.2d 149, 152 (1st Cir. 1974); 

see United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993).


 
      The government is not required, however, to negate every possible 

non-income source of each deposit, particularly where the source of the 

funds is uniquely within the knowledge of the taxpayer and the government 

has checked out those explanations given by the taxpayer that are reasonably 

susceptible of investigation.  United States v. Conaway, 11 F.3d at  

43-44;  United States v. Boulet, 577 F.2d 1165, 1171 (5th Cir. 1978). 


 
      The adequacy of the investigation necessarily turns on the 

circumstances of each case.  United States v. Slutsky, 487 F.2d 832, 

841 (2d Cir. 1973).  The rule is one of practicality.  Although the 

government is not required to negate all possible non-income sources of 

deposits to the taxpayer's accounts, United States v. Slutsky, 487 

F.2d at 841, "the agent does have an overall burden to prove that he has 

done the best he can to discover, and exclude, all non-income items from the 

reconstructed income," Morse, 491 F.2d at 154.  For examples of the 

investigative steps taken to distinguish between income and non-income 

deposits, see United States v. Hall, 650 F.2d 994, 1000 (9th 

Cir. 1981); United States v. Helina, 549 F.2d 713 (9th Cir. 1977); 

United States v. Stein, 437 F.2d 775, 778 (7th Cir. 1971); United 

States v. Venuto, 182 F.2d 519, 520 (3d Cir. 1950).


 
 

33.05[2] Proof of Non-Income Items


 
      If the analysis categorizes certain deposits as "non-income", the 

direct evidence the agent relied upon to make that determination must be 

introduced. It is error to rely merely on hearsay testimony of the 

investigating agent. United States v. Morse, 491 F.2d 149, 152-55 

(1st Cir. 1974).


 
      In Morse, the agent testified that after completing a thorough 

investigation, he identified non-income deposits into the defendant's bank 

accounts from loan proceeds, inter-bank transfers, proceeds from the 

transfer of land, and proceeds from the sale of a truck.  Morse, 491 

F.2d at 153.


 
      However, the government did not introduce any of the documents upon 

which the agent had relied, on the grounds that since the items were a 

credit to the defendant, no prejudice would result.  The appellate court 

reversed because of the possible prejudice to the defendant if the 

government did not accurately calculate the amounts of the non-income 

deposits.  Morse, 491 F.2d at 154.  The court stated "[w]here direct 

evidence is available as to their existence and magnitude, there is no need 

to rely on the agent's hearsay assertion that they were no larger than he 

had accounted for.  Accordingly, we cannot accept the government's 

position."  Id.


 
      In Morse, for example, although bank ledger cards were 

available to  prove loan proceeds, the government did not introduce them, 

which deprived the court and jury of any knowledge of the particular banks 

from which the defendants received the loans, the dates of the loans, and 

the amount of each loan.  Morse, 491 F.2d at 154.  Similarly, the 

court pointed out that the agent's hearsay testimony also affected 

non-income deposits regarding inter-bank transfers, returned checks, and 

sales proceeds.  Morse, 491 F.2d at 155 n.10.


 
      The foregoing should be distinguished from the situation where the 

investigation does not disclose any non-income deposits or any non-income 

deposits in addition to those allowed.  "To be sure, the court must rely on 

mere assertion when the agent testifies that he could find no evidence of 

other non-income items, but then, of course, no better evidence would 

exist." Morse, 491 F.2d at 154 n.8.


 
 

33.05[3] Good Faith Errors


 
      In a bank deposits computation, as in any other tax case, unreported 

income which results from good faith accounting errors and the like 

(i.e., a mathematical error by an accountant) should not be included 

in the computation of unreported income.  United States v. Stein, 437 

F.2d 775, 777 (7th Cir. 1971).  See also United States v. 

Allen, 522 F.2d 1229, 1231 (6th Cir. 1975); United States v. 

Altruda, 224 F.2d 935, 940 (2d Cir. 1955).  See Section 31.11, 

supra.


 



 

33.06 UNIDENTIFIED DEPOSITS


 
      After seeking to identify the sources of the bank deposits, those 

deposits which have not been established as either income or non-income 

deposits are denominated as "unidentified deposits".  To the extent that 

such unidentified deposits have the inherent appearance of current income, 

they are included with identified income deposits in determining the 

taxpayer's income.


 
      In Gleckman v. United States, 80 F.2d 394, 397 (8th Cir. 1935), 

the bank deposits computation included over $92,000 in untraceable cash 

deposits and unidentified deposits.  The defendant argued that those 

deposits "may just as well have been drawn from nontaxable transactions as 

from services or business."  Gleckman, 80 F.2d at 399.  Rejecting 

this argument, the court pointed out that there was substantial 

circumstantial evidence in the record that the defendant had an unreported 

business, and that some of the deposits were derived from this business.  

Thus, the deposits were sufficiently shown to be of a taxable nature.  

Gleckman, 80 F.2d at 399-400. Note that in Gleckman, the 

government demonstrated that the defendant had an illegal business apart 

from the business described in his tax return, that property statements 

showed that the defendant's net worth had increased, and that the government 

auditor had spent weeks with the defendant's agent in unsuccessfully 

attempting to find explanations for the deposits that would justify 

eliminating them from taxable income.  Gleckman, 80 F.2d at 400.


 
      United States v. Slutsky, 487 F.2d 832, 841 (2d Cir. 1973), 

involved approximately $18 million in total deposits over a three-year 

period and, of the total charged as income, approximately $8.6 million was 

in unidentified deposits and $1 million was in currency.  The court held 

that the government's investigation was sufficient to support the inference 

that unexplained excess receipts were attributable to currently taxable 

income and that the government was not required to negate all possible 

non-income sources of the deposits.  Slutsky, 487 F.2d at 841.  

Holding that the government's investigation was "clearly sufficient under 

the particular circumstances of the case", the court found that the 

investigation included a detailed check of every item in an amount greater 

than $1,000, with very few specified exceptions, and a random check of 1447 

items in amounts less than $1,000, with the analyzed items found to 

constitute income in virtually every instance.  Slutsky, 487 F.2d at 

841-42.  In addition, almost every item in an amount under $1,000 was 

reflected by a check with a room number encircled on the back (the 

defendants operated a resort in the Catskill Mountains).  Slutsky, 

487 F.2d at 842.  Commenting on the government investigation, the court 

concluded:


 
      To hold the government to a stricter duty of investigation than it 

      performed here would be to ignore both the "reasonableness" and 

      "fairness" strictures that have been imposed; it would also result in 

      an exercise in diminishing returns in terms both of the provision of 

      relevant information to the fact-finder and of the protection of the 

      rights of taxpayers.


 
Slutsky, 487 F.2d at 842.


 
      In United States v. Lacob, 416 F.2d 756, 758 (7th Cir. 1969), 

the court upheld as adequate an investigation involving total deposits of 

$99,000 in one year by a lawyer who specialized in personal injury claims 

and received fees of 20% or 33 1/3% of the recovery obtained, depending on 

whether the case was a workmen's compensation claim or a personal injury 

claim.  There were approximately $39,000 in unidentified and unexplained 

checks deposited.  The defendant was charged with income equal to 20% of 

these checks, based on the assumption, in the absence of other proof, that 

these were the proceeds of the defendant's cases and that his fee was the 

lower of the two fee bases he used. Similarly, in United States v. 

Procario, 356 F.2d 614, 617-18 (2d Cir. 1966), the defendant was a 

doctor, and more than one-third of the total alleged professional receipts 

were in the form of deposits not identified by the government.  Rejecting 

the defendant's argument that there was no evidence from which the jury 

could have inferred that the unidentified deposits represented income from 

professional services, the court said:


 
      The government relied on the fact that it excluded all  possible 

      dividends, on the small size and relative frequency  of the deposits, 

      similar to deposits and other income proven  to be professional 

      receipts, and on the fact that appellant  had patients other than 

      those whose payments were included  in Items 4 and 6, the directly 

      proven items of income.  This  was sufficient.


 
Procario, 356 F.2d at 618.


 
      The basis of the government's case in Graves v. United States, 

191 F.2d 579, 581-82 (10th Cir. 1951), was that the defendant, who operated 

drug stores, realized income that was not deposited in the store bank 

accounts, not entered in the books, and not reported on his return.  The 

"purported income" was represented by currency deposits in various special 

and personal bank accounts of the defendant and his wife, the purchase of 

government bonds, the sale of cattle, a loan of money, and  a personal check 

from a store manager representing store receipts.  The court agreed with the 

defendant that currency deposits in the defendant's bank account, standing 

alone, did not prove unreported income but went on to say that "currency 

deposits from unidentified sources which are not reflected in the books and 

records from which income tax returns are made and tax liability determined 

are substantial evidence of an understatement of income and it is incumbent 

upon the taxpayer to overcome the logical inferences which may be drawn from 

these proven facts." Graves, 191 F.2d at 582.


 
      In United States v. Ludwig, 897 F.2d 875, 882 (7th Cir. 1990), 

the Seventh Circuit upheld a conviction based partly on unidentified 

deposits, which the defendants claimed were "irregular, not specifically 

identified as coming from any particular income source, were made to a 

personal rather than business account, and were placed in an account that 

[one defendant] had no control over."  The court of appeals held that the 

jury was properly instructed that "the duty to reasonably investigate 

applies only to suggestions or explanations made by the defendant or to 

reasonable leads which otherwise turn up.  The government is not required to 

investigate every possible source of non-taxable funds".  Ludwig, 897 

F.2d at 882.


 
      On the other hand, it is necessary that the facts and circumstances 

put in evidence by the government justify, by reasonable inference at least, 

that the unidentified deposits represent income items.  Kirsch v. United 

States, 174 F.2d 595, 601 (8th Cir. 1949).  In reversing the conviction 

in Kirsch, the court criticized the failure of the government to make 

any effort to investigate the unidentified deposits.  The agent testified at 

the trial that he was aware that all of the deposits were not income, and 

instead of making an effort to find out the amounts of nonincome deposits, 

he simply assumed that all deposits were income.  In doing so, he shifted 

the burden to the defendant to show how much was not income or suffer the 

consequences. This procedure, said the court, "cannot be approved."  

Kirsch, 174 F.2d at 601.  See also Paschen v. United 

States, 70 F.2d 491, 497 (7th Cir. 1934).  Ultimately, whether 

unidentified deposits are accepted as current receipts will depend on the 

strength of the evidence supporting the relationship of the deposits to an 

income-producing activity, the completeness of the analysis of deposits, and 

the thoroughness of the investigation conducted.


 



 

33.07 BANK DEPOSITS PLUS UNDEPOSITED CURRENCY EXPENDITURES


 
33.07[1] Generally


 
      In some cases it will be found that a taxpayer engaged in a business 

or income-producing activity, made regular and periodic deposits to a bank 

account and, in addition, made a number of cash expenditures by using cash 

that was never deposited in the taxpayer's bank account.  In this situation, 

as explained in United States v. Boulet, 577 F.2d 1165, 1167 (5th 

Cir. 1978), after the bank deposits have been added together and nontaxable 

amounts are eliminated, the amount of expenditures made in cash (but not 

deposited) is added to derive gross income.  Applicable deductions and 

exemptions are then subtracted, resulting in corrected taxable income.  

Boulet, 577 F.2d at 1167. See also United States v. 

Mounkes, 204 F.3d 1024, 1028 (10th Cir.), cert. denied, 530 U.S. 

1230 (2000); United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 

1993); United States v. Abodeely, 801 F.2d 1020, 1024 (8th Cir. 

1986); United States v. Ayers, 673 F.2d 728, 730 (4th Cir. 1982); 

United States v. Berzinski, 529 F.2d 590, 592 (8th Cir. 1976); United 

States v. Morse, 491 F.2d 149, 152 (1st Cir. 1974) (after totaling 

deposits and eliminating non-income items, "[t]he Government then includes 

any additional income which the taxpayer received during the tax year but 

did not deposit in any bank account"); Morrison v. United States, 270 

F.2d 1, 23 (4th Cir. 1959); Percifield v. United States, 241 F.2d 

225, 229 n.7 (9th Cir. 1957); United States v. Nunan, 236 F.2d 576, 

580 (2d Cir. 1956); Bostwick v. United States, 218 F.2d 790, 794 (5th 

Cir. 1955).


 
      The underlying theory in including expenditures made with cash that 

did not go through the bank account in the analysis is that it may be 

inferred that the cash expenditures were made with current income, unless 

they are shown to have been made from non-income sources.  But 

see Abodeely, 801 F.2d at 1024 (government must demonstrate 

beyond a reasonable doubt that the unreported income came from a taxable 

source).  Abodeely does not, however, require the government to 

negate absolutely all possible sources of non-taxable income.  Quoting 

United States v. Esser, 520 F.2d 213, 217 (7th Cir. 1975), the court 

in Abodeely stated that the government must "'do everything that is 

reasonable and fair . . . [in] the circumstance to identify any non-income 

transactions . . . .'"  Alternatively, the government may prove a likely 

source of the income.  Abodeely, 801 F.2d at 1025.  Technically, it 

should not be necessary to establish cash on hand in a bank deposits case, 

because the method is grounded on the concept that if the taxpayer is in an 

income-producing business and makes regular and periodic deposits to a bank 

account, any deposits remaining after eliminating non-income items represent 

taxable income.  Where cash expenditures are added to deposits, however, the 

cases indicate that the government must establish the amount of cash the 

taxpayer had on hand at the start of the prosecution period.  See, 

e.g., United States v. Soulard, 730 F.2d 1292, 1298 (9th Cir. 

1984); Boulet, 577 F.2d at 1168; United States v. Slutsky, 487 

F.2d 832, 842 (2d Cir. 1973).  See Section 33.08, infra, Cash 

on Hand.  This is done to prevent charging the taxpayer with income for 

expenditures made not with current income but with nontaxable prior 

accumulated funds.


 
      The "bank deposits and cash expenditures" method is not an 

amalgamation of the "bank deposits" method and the "expenditures" method. 

Abodeely, 801 F.2d at 1024.  There is no need to show net worth when 

using this method.  Conaway, 11 F.3d at 43; Abodeely, 801 F.2d 

at 1024; Boulet, 577 F.2d at 1167 & n.3; Percifield, 241 F.2d 

at 230.


 
 

33.07[2] Amount of Cash Expenditures


 
      There are two ways of establishing the amount of cash expenditures.  

The first is by direct proof of specific currency expenditures from 

undeposited funds uncovered during the investigation.  The second is by the 

indirect method of comparing known total disbursements for specific 

categories claimed on the tax return (e.g., business expenses) with 

checks written for such disbursements, with any amount claimed on the return 

in excess of check expenditures treated as a currency expenditure.  As to 

cash expenditures uncovered during the investigation, the proof consists of 

merely establishing that the currency expenditures were made with 

nondeposited funds.  Thus, either through testimony or documents it is 

established that the taxpayer made expenditures in cash and not through a 

checking account.  If the taxpayer has withdrawn cash from a bank account 

during the year, however, then any such cash withdrawals must be subtracted 

from the currency expenditures unless it can be shown that the withdrawn 

cash was not used to make a currency expenditure.  Once this is done, the 

theory is that the undeposited currency expenditures were made with and 

represent current taxable income, after the elimination of any non-income 

items, in the same way that deposits represent taxable income.


 
      The indirect method of establishing undeposited currency expenditures 

is to start with an expenditure claimed by the taxpayer on the tax return 

and compare this amount with checks written for the expenditure.  If it can 

be shown that the taxpayer's checks do not account for all or a part of the 

expenditure, then any amount not paid by check must have been paid in cash.  

For example, if the taxpayer has claimed business expenses of $20,000, and 

checks can be shown as accounting for only $12,000 in business expenses, 

then it follows that the remaining $8,000 was paid in cash.  Under these 

circumstances, the $8,000 paid in cash would be added to deposits in 

arriving at taxable income.  For an example of the application of this  

method of establishing cash expenditures, see Greenberg v. United 

States, 295 F.2d 903 (1st Cir. 1961):


 
      This leads us into the serious evidentiary objections.  Gray's theory 

      of building up the company's gross receipts by deducting from the 

      merchandise expense item on the returns the amount paid for 

      merchandise by check and attributing the balance to non-bank account 

      cash, which, in turn, he labelled additional gross receipts, was 

      entirely fair.


 
Greenberg, 295 F.2d at 903.


 
      The conviction in Greenberg was reversed, however, because of 

hearsay testimony by the agent.  Thus, in Greenberg, the government 

sought to prove the purpose of checks drawn by the taxpayer solely through 

the conclusory testimony of the special agent that the checks he selected 

represented payments for merchandise and that any excess amount claimed on 

the return as a merchandise expense represented a cash expenditure. 

Greenberg, 295 F.2d at 906.  The special agent's analysis of the 

checks was based on inquiries which he had made previously to the payees of 

the checks.  No payee or other third party, however, testified at the trial. 

Further, no records or admissions of the defendant as to the purpose of the 

checks was introduced.  Greenberg, 295 F.2d at 904.  The court held 

that it was elementary that the purpose of the checks could not be 

established by what third parties had told the agent out of court, or by the 

agent's testimony of what he concluded from his examination of the checks. 

Greenberg, 295 F.2d at 908.  In the example given above, it would 

thus be error for the agent merely to review and classify certain checks as 

being for business purposes.  It would be necessary to call the third-party 

payees as witnesses or to introduce other testimonial or documentary 

evidence establishing the purpose of the checks.


 
      Note that where the agent has interviewed the taxpayer and the 

taxpayer states the purpose for which a check was issued, this constitutes 

an admission, and it is not necessary to call in the third parties.  Fed. R. 

Evid. Rule 801(d)(2)(A).  In this situation, it is common for the agent to 

prepare a check spread on the basis of the taxpayer's admissions and 

introduce the schedule, as an admission, into evidence.


 



 

                   33.08 CASH ON HAND

33.08[1] Generally


 
      The rationale of the bank deposits method of proof supports the 

reasoning that affirmative proof as to opening cash on hand is not 

necessary.  Net worth need not be established in a bank deposits case.  

United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993); 

United States v. Abodeely, 801 F.2d 1020, 1024 (8th Cir. 1986); 

United States v. Boulet, 577 F.2d 1165, 1167 & n.3 (5th Cir. 1978).  

Therefore, cash on hand should be relevant not as an asset, but as a 

potential source of deposits. The underlying evidence introduced to 

establish the relationship between deposits and the income-producing 

activity is often sufficient to support a finding that the deposits are 

current receipts.  This argument is strongest when a substantial number of 

deposits are identified as income and there are not significant currency 

deposits or cash expenditures involved in the bank deposits analysis.


 
      In United States v. Slutsky, 487 F.2d 832, 842 (2d Cir. 1973), 

the Second Circuit, in affirming a conviction for tax evasion, suggested 

that an essential element in all bank deposits cases is the establishment of 

cash on hand.  However, the need for an adequate starting point was 

necessary in Slutsky because the case involved both currency deposits 

and the existence of a "cash on hand account" in proving unreported 

receipts.  It would not seem appropriate to extend the rationale of 

Slutsky to all bank deposits cases, especially those cases not 

involving currency deposits or a cash on hand account.


 
      A blind adherence to Slutsky can lead to an unrealistic and 

fanciful result.  Thus, in United States v. Birozy, 74-2 T.C. 9564 

(E.D.N.Y. 1974), the trial judge entered a judgment of  acquittal on the 

basis that the government failed to establish a starting cash on hand amount 

for the defendant.  However, the record indicates that there was only $2,300 

in cash deposits out of apparently some $200,000 in total deposits, and even 

if the $2,300 in cash deposits was eliminated, there still existed a 

substantial tax due and owing.


 
      For a more realistic approach, see Scanlon v. United 

States, 223 F.2d 382, 388-89 (1st Cir. 1955) (even if reasonable lead is 

assumed to be true, it accounted for only $3,000 out of $23,466, and the 

evidence was therefore sufficient to convict).  The better and correct view 

would seem to be that whether the government must establish the taxpayer's 

cash on hand will depend on the circumstances of a given case.  Generally 

speaking, if the bank deposits computation does not include any currency 

deposits and undeposited cash expenditures are not added to deposits in 

arriving at taxable income, then it should not be necessary to establish the 

taxpayer's cash on hand.  Under these circumstances, a cash hoard defense 

would be irrelevant because, even if there were a cash hoard, it could not 

have played a role in the bank deposits computation.


 
      There can be exceptions to this general rule, depending on the facts 

of a given case.  For example, in theory, a taxpayer could have a cash 

hoard, purchase a cashier's check with the cash hoard and then deposit that 

check in his bank account.  This is a theoretical possibility, but unless 

the taxpayer volunteers such an explanation, the government should not have 

a duty to refute it.  "The government is not required to negate all possible 

non-income sources of the deposits, particularly where the source of the 

income is uniquely within the knowledge of the taxpayer", and it is shown 

that a thorough investigation was conducted.  United States v. 

Boulet, 577 F.2d 1165, 1168-69 (5th Cir. 1978).  See also 

United States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993); 

Slutsky, 487 F.2d at 842.


 
      On the other hand, if the bank deposits computation includes  currency 

deposits, the cases indicate that the government must establish a beginning 

cash on hand figure.  The underlying principle is that if the taxpayer 

deposited pre-existing cash into his bank accounts during the tax years in 

question, then this could explain the "excessive" deposits and reduce or 

eliminate the claimed understatement of income.  United States v. 

Soulard, 730 F.2d 1292, 1298 (9th Cir. 1984); United States v. 

Shields, 571 F.2d 1115, 1120 (9th Cir. 1978).  Similarly, cash on hand 

must be established where nondeposited cash expenditures are added to 

deposits in arriving at taxable income, unless it can be demonstrated 

clearly that any pre-existing cash on hand was not the source of the 

expenditures.  See Boulet, 577 F.2d at 1168.


 
 

33.08[2] Proof Of Cash On Hand


 
      The government is not obligated to prove cash on hand "with 

mathematical exactitude."  United States v. Mounkes, 204 F.3d 1024, 

1028 (10th Cir.), cert. denied, 530 U.S. 1230 (2000); United 

States v. Conaway, 11 F.3d 40, 43-44 (5th Cir. 1993); United States 

v. Boulet, 577 F.2d 1165, 1170 (5th Cir. 1978);  It is only required 

that the government prove cash on hand "with reasonable certainty." 

Mounkes, 204 F.3d at 1028; United States v. Slutsky, 487 F.2d 

832, 842 (2d Cir. 1973);  United States v. Normile, 587 F.2d 784, 785 

(5th Cir. 1979); .  Where a thorough government investigation does not 

develop any evidence of cash on hand, it is proper to "use a cash on hand 

figure of zero."  United States v. Shields, 571 F.2d 1115, 1120-21 

(9th Cir. 1978).  In the final analysis, the existence of any cash on hand 

presents a factual issue for determination by the jury.  United States v. 

Parks, 489 F.2d 89, 90 (5th Cir. 1974).


 
      For an extended discussion of concepts relating to cash on hand, 

reference should be made to Sections 31.06 and 31.07, supra.


 



 

33.09 REASONABLE LEADS


 
      The government must investigate reasonable, relevant leads furnished 

by a taxpayer, reasonably susceptible of being checked, which, if true, 

would establish the taxpayer's innocence.  United States v. Conaway, 

11 F.3d 40, 43-44 (5th Cir. 1993); United States v. Ludwig, 897 F.2d 

875, 882 (7th Cir. 1990); United States v. Hall, 650 F.2d 994, 1000 

(9th Cir. 1981); United States v. Boulet, 577 F.2d 1165, 1169 (5th 

Cir. 1978); United States v. Esser, 520 F.2d 213, 217 (7th Cir. 

1975); United States v. Slutsky, 487 F.2d 832, 843 n.14 (2d Cir. 

1973) ("[t]he contention that the 'leads' doctrine should be confined to a 

net worth case is no longer tenable"); United States v. 

Ramsdell, 450 F.2d 130, 132 (10th Cir. 1971); United States v. 

Stein, 437 F.2d 775, 778 (7th Cir. 1971);).


 
      If the government fails to investigate a reasonable lead timely 

furnished by the defendant, the trial court may consider the defendant's 

version as true and so instruct the jury.  Hall, 650 F.2d at 1000;  

see also Holland v. United States, 348 U.S. 121, 136 

(1954). There is, however, a rule of reason and "the government's 

investigators are not obliged to track down every conceivable lead offered 

by the taxpayer to justify the non-income designation of a particular item."  

Esser, 520 F.2d at 217.  See  Ludwig, 897 F.2d 

at 882; United States v. Normile, 587 F.2d 784, 786 (5th Cir. 1979) 

(agents not obliged to check every bank in the area nor to check every 

deposit slip in taxpayer's account to find "lead" to wife's account);  

United States v. Lenamond, 553 F. Supp. 852, 855, 860 (N.D. Tex. 

1982) (agents obliged to check lead regarding correctness of reported 

inventory figures, because lead was provided more than two years before 

trial and was reasonably verifiable, and the reported inventory figures were 

"astonishing" and "truly anomalous").


 
      Leads furnished by a taxpayer must be both timely and reasonably 

susceptible of being checked.  Conaway, 11 F.3d at  43-44 ("We cannot 

reasonably expect the government to find secret cash hoards without taxpayer 

assistance."); Normile, 587 F.2d at 786 ("[t]he 

government was not obliged to bay down rabbit tracks"); United States v. 

Procario, 356 F.2d 614, 617 (2d Cir. 1966) (leads furnished "on the eve 

of indictment" were too late);.


 
      In considering questions concerning the reasonable leads doctrine, 

reference should be made to Section 31.13, supra.


 



 

33.10 USE OF SUMMARY CHARTS AND SCHEDULES


 
      In a bank deposits case, just as in a net worth case, at the close of 

its case, the government calls to the stand a summary expert witness, who 

summarizes the evidence and presents schedules reflecting the government's 

bank deposits computation.


 
      It is well established that a government agent can summarize the 

evidence and present computations and schedules reflecting the bank deposits 

computations. United States v. Soulard, 730 F.2d 1292, 1300 (9th Cir. 

1984) (summary charts are not to be admitted in evidence or used by the jury 

during deliberations but can be used as "testimonial aids" during the 

agent's testimony and during closing arguments); United States v. 

Esser, 520 F.2d 213, 217 (7th Cir. 1975); United States v. Morse, 

491 F.2d 149, 152-53 (1st Cir. 1974);   United States v. Stein, 437 

F.2d 775, 780 (7th Cir. 1971) ("challenges advanced by defendant to the use 

of such summaries have been long since considered and rejected by the 

Supreme Court"); United States v. Lacob, 416 F.2d 756, 762 (7th Cir. 

1969); Graves v. United States, 191 F.2d 579, 584 (10th  Cir. 1951) 

(government agent's schedule "was clearly admissible").


 
      The agent's schedules must be based on evidence in the record and 

should not contain captions that are "anymore conclusionary or impressive 

than required to make the summaries understandable."  Lacob, 416 F.2d 

at 762; Esser, 520 F.2d at 218 ("record shows that the summary 

witness relied only upon the evidence received during the trial and that he 

was available for full cross-examination").


 
      The testifying agent need not be involved in the investigation or 

original preparation of the government's case.  Thus, a "summary expert" can 

be called to the witness stand to present the government's bank deposits 

analysis as long as the witness is qualified as an expert.  Soulard, 

730 F.2d at 1299.


 
      The same principles applicable to schedules and summaries in a net 

worth case are also applicable in a bank deposits case.  Stein, 437 

F.2d at 780.  Accordingly, reference should be made to Section 31.16, 

supra, Sample Net Worth Schedule.


 



 

33.11 JURY INSTRUCTIONS


 
      The defendant is "clearly entitled to a special explanatory charge" 

when the government proceeds on the bank deposits method of proof. ; 

United States v. Wiese, 750 F.2d 674, 678 (8th Cir. 1984) ("[w]hen 

the government uses the bank deposit method, a trial court should instruct 

the jury on the nuances of that method of accounting"); United States v. 

Hall, 650 F.2d 994, 999 (9th Cir. 1981) ("comprehensive explanatory 

instructions must be given when the bank deposits method of proof is used, 

just as is required by Holland for the net worth method"); 

Greenberg v. United States, 295 F.2d 903, 907 (1st Cir. 1961).


 
      For a sample bank deposits jury instruction, see the section on 

jury instructions, infra.


 



 

33.12 SAMPLE BANK DEPOSITS COMPUTATION


 
      Reproduced on the page which follows is a hypothetical bank deposits 

summary computation.  Note that ancillary schedules such as an analysis of 

deposits are not included in the example.

                   

                   SAMPLE BANK DEPOSITS SUMMARY COMPUTATION


 
Bank Deposits plus Cash Expenditures and Specific Items Not Deposited


 
1997 Tax Year


 
Total Bank (Brokerage) Account Deposits                            $100,675.00


 
Less: Nontaxable receipts

            Transfers from other accounts           $1,500.00

            Redeposits (Bad checks)                    200.00

            Proceeds from borrowings (Loans)         1,000.00

            Proceeds from repayment of loan            500.00

            Gift                                       200.00

            Inheritance                              2,000.00

            Other deposits - eliminated              1,500.00      -$ 6,900.00


 
Net Deposits                                                       $ 93,775.00


 
Plus: Cash expenditures                            $10,200.00


 
      Specific Items of Income -Not Deposited        5,100.00


 
             15,300


 
Gross Receipts                                                    $109,075.00


 
Less:  Business Expenses                                          *-21,000.00


 
Net Profit From Business                                          $ 88,075.00


 
Less:  Itemized deductions                                         *-5,075.00


 
                                                                  $ 83,000.00


 
Less:  Exemptions (4) x $2,650                                     -10,600.00


 
Corrected Taxable Income                                          $ 72,400.00


 
Less:  Taxable Income per return                                   -41,000.00


 
Unreported Taxable Income                                         $ 31,400.00


 
* Generally determined from tax return filed.  However, if investigation

establishes amounts greater than those claimed on return(s) the larger amounts

are used for criminal computation purposes.

 
 

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