Opinion ID: 357064
Heading Depth: 2
Heading Rank: 2

Heading: Purification of Bank Deposits

Text: 20 Dr. Boulet's receptionist received payments from patients and prepared a list of checks received each day. At the end of the day he and his receptionist would total the cash and checks and enter them on a deposit slip. About noon every day he went to the bank in person and made a deposit. This deposit was the basis used by him to report income. 21 Sometimes patients presented a check to the receptionist in payment of a bill that was less than the amount of the check; she cashed the check if the cash on hand was sufficient. During the investigation, Dr. Boulet informed the agent that his receptionist kept only about $30 in cash on hand for this purpose. If the receptionist did not have enough cash from the $30 till money and from cash fees already collected that day, she referred the patient to the bank, which was only a block away. The patient would go there, cash the check, then return and pay the bill in cash. The agent, therefore, treated all deposits of checks not otherwise identified as reflecting medical fees. 22 At the trial, however, the receptionist testified that patients frequently presented social security or welfare checks for amounts substantially in excess of their bills, and she would give these checks to Dr. Boulet who would cash them. This contention had never before been made known to the agents. Dr. Boulet now argues that the bank deposits reflect a substantial infusion of cash from his hoard, and are not entirely earned income; hence the government failed adequately to purify his bank deposits. He points by contrast to the effort made in United States v. Slutsky, supra, where the government analyzed each check deposited with a face amount in excess of $1000. In Slutsky, however, bank deposits in each of the years under examination exceeded $5,000,000 and the taxpayer had informed the agents that the deposits included non-income items; the IRS made an income analysis of items under $1000, but actually examined in detail only the deposited checks in excess of $1000 each. It treated all currency deposited in some or all of the six bank accounts as income. 23 Neither Dr. Boulet nor his receptionist gave this kind of information to the agents during the investigation. Moreover, even if the microfilm of every bank deposit had been located and reproduced, and every check made payable to a patient and endorsed by him had been reviewed, there was no way to separate non-income items. If a check had been found in the amount of $150.00, made payable to a patient and endorsed by him, and it was established that his doctor's bill was $8.00, and that he received $142.00 in change, there would be no way to determine whether the receptionist obtained the change from fees already collected that day (together with the till money kept from earlier fees) or obtained some of it from Dr. Boulet. Even if she obtained some funds from Dr. Boulet, because he said he kept some fees on hand in cash, there would be no way to determine whether the cash he then gave was from current and as yet unreported income or from the alleged hoard built up in earlier years. 24 There were only two possible sources for any change: cash on hand from prior years or fees received from other patients during the current year and not yet deposited. Because cash on hand was established with reasonable certainty, the money paid the patients in exchange for checks could have consisted of undeposited earnings from other patients. Hence, it was a reasonable inference that the deposits consisted of earned income. 25 As our brethren of the Second Circuit said, in United States v. Slutsky, supra, 487 F.2d at 841, The adequacy of a bank deposits investigation necessarily turns on its own circumstances. The critical question is whether the investigation was sufficient to support the inference that the unexplained excess in deposits was in fact attributable to currently taxable income. The government is not required 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 it checks those explanations given by him that are reasonably susceptible of investigation. 26 Remembering that the suggestion that non-income funds were used to cash checks that were later deposited was made for the first time at the trial, we conclude that the government satisfied its obligation to explore leads thoroughly, and to make an adequate investigation of all the facts reasonably ascertainable. It may not present a case to the jury with less. It may not fling a handful of circumstantial evidence in front of a jury. It must do whatever is reasonable under the circumstances. But it is not required to conjecture about and either prove or negate every conceivable defense once it has met its own burden, explored every reasonable avenue and investigated every lead furnished by the taxpayer and his employees.