§7491 — Burden of proof

485, 492–93 (2017), supplementing and overruling in part 147 T.C.

485, 492–93 (2017), supplementing and overruling in part 147 T.C.

485, 493 (2017), supple- -21- [*21] menting and overruling in part 147 T.C.

485, 493 (2017), supplementing and overruling in part 147 T.C.

485, 493 (2017), supplementing and overruling in part 147 T.C.

20, 2017), supplementing and overruling in part 147 T.C.

20, 2017), supplementing and overruling in part 147 T.C.

Argument Four: Section 7491 and Penalties Section 7491(a) applies only to “factual issue[s] relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B.” Section 7491(a) does not apply to section 6662 penalties (found in subtitle F of the Code).

The Commissioner’s remaining arguments sound in various prerequisites established by the 9 Section 7491(c) provides that the Commissioner “shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount.” (Emphasis added.) This provision does not apply to TEFRA partnership-level proceedings (such as this case).

6–8, the underlying tax liabilities are not at issue in this case, and thus section 7491 is inapplicable.

In addition, section 7491(a) may serve to place the burden ofproofon the Commissioner as to any factual issue relevant to ascertaining the taxpayer's liability ifthe taxpayer (1) introduces credible evidence with respect to that issue and (2) satisfies certain other requirements. However, although petitioners' testimony was credible, section 7491 does not apply because there is no dispute between the parties regarding any factual issue.

vel, that penalty may not apply to any particular partner.6 Therefore, under a plain reading ofthe applicable statutes, section 6For example, the Court might determine at the partnership level that a substantial understatement penalty is applicable, but partner-level computations (continued...) 17 7491(c) does not apply, and the Commissioner does not bear the burden of production with respect to penalties and additions to tax in a partnership-level proceeding.

vel, that penalty may not apply to any particular partner.6 Therefore, under a plain reading ofthe applicable statutes, section 6For example, the Court might determine at the partnership level that a substantial understatement penalty is applicable, but partner-level computations (continued...) 17 7491(c) does not apply, and the Commissioner does not bear the burden of production with respect to penalties and additions to tax in a partnership-level proceeding.

Petitioner has the burden of proofin this matter as the record demonstrates that section 7491 does not apply to shift the burden.

7491, which shifts the burden ofproofto the Secretary in certain circumstances, does not apply to employment tax disputes.

7491, which shifts the burden ofproofto the Secretary in certain circumstances, does not apply to employment tax disputes.

7491(a). However, section 7491(a) is inapplicable to excise tax liabilities, which are imposed under subtitle D ofthe Code.

7491(a). However, section 7491(a) is inapplicable to excise tax liabilities, which are imposed under subtitle D ofthe Code.

7491(c); see also Higbee v. Commissioner, 116 T.C. at 446. In the case ofa partnership, however, it is not clear whether the Commissioner bears the burden ofproduction. See Seismic Support Servs., LLC v. Commissioner, T.C. Memo. 2014-78, at *9 n.11 (discussing the Court's varied treatment ofwhether section 7491(c) is inapplicable where the taxpayer is not an "individual").

7491(c); see also Higbee v. Commissioner, 116 T.C. at 446. In the case ofa partnership, however, it is not clear whether the Commissioner bears the burden ofproduction. See Seismic Support Servs., LLC v. Commissioner, T.C. Memo. 2014-78, at *9 n.11 (discussing the Court's varied treatment ofwhether section 7491(c) is inapplicable where the taxpayer is not an "individual").

7491(c); see also Higbee v. Commissioner, 116 T.C. at 446. In the case ofa partnership, however, it is not clear whether the Commissioner bears the burden ofproduction. See Seismic Support Servs., LLC v. Commissioner, T.C. Memo. 2014-78, at *9 n.11 (discussing the Court's varied treatment ofwhether section 7491(c) is inapplicable where the taxpayer is not an "individual").

7491(c); see also Higbee v. Commissioner, 116 T.C. at 446. In the case ofa partnership, however, it is not clear whether the Commissioner bears the burden ofproduction. See Seismic Support Servs., LLC v. Commissioner, T.C. Memo. 2014-78, at *9 n.11 (discussing the Court's varied treatment ofwhether section 7491(c) is inapplicable where the taxpayer is not an "individual").

7491(a)(2)(A) and (B). We therefore conclude that sec. 7491(a)(1) does not apply in this case.

7491(c); see also Higbee v. Commissioner, 116 T.C. at 446. In the case ofa partnership, however, it is not clear whether the Commissioner bears the burden ofproduction. See Seismic Support Servs., LLC v. Commissioner, T.C. Memo. 2014-78, at *9 n.11 (discussing the Court's varied treatment ofwhether section 7491(c) is inapplicable where the taxpayer is not an "individual").

7491(c); see also Higbee v. Commissioner, 116 T.C. at 446. In the case ofa partnership, however, it is not clear whether the Commissioner bears the burden ofproduction. See Seismic Support Servs., LLC v. Commissioner, T.C. Memo. 2014-78, at *9 n.11 (discussing the Court's varied treatment ofwhether section 7491(c) is inapplicable where the taxpayer is not an "individual").

Because the Court decides this case without regard to the burden ofproof, section 7491 is inapplicable.

Section 7491, which shifts the burden ofproofto the Secretary in certain other circumstances, does not apply to employmenttax disputes.

PIC's pretrial memorandum contends that the burden should shift to the Commissionerpursuant to section 7491. The Commissioner argues that section 7491 does not apply in a declaratoryjudgment act on brought under section 7428.

7491, which shifts the burden ofproofto the Secretary in certain circumstances, does not apply to employment tax disputes.

Because there is no factual dispute in this case, section 7491 is inapplicable.

7491(c). II. Section 166 bad debt deduction A. Bona fidé debt Section 166(a)(1) allows as a deduction any bona fide debt that becomes worthless within the taxable year. For nonbusiness bad debt held by a taxpayer other than a corporation, section 166(a)(1) does not apply, and the taxpayer is allowed a short-term capital loss for the taxable year in which the debt becomes completely worthless.

Indeed, petitioners' stipulation offacts renders section 7491 inapplicable.

Section 7491(a) sometimes shifts the burden ofproofto the Commissioner, but that section does not apply here because we find that petitioners failed to satisfy each requirement set forth in section 7491(a)(2)(A) and (B).20 Petitioners argue that respondent has the burden ofproofirrespective ofany applicability ofsection 7491 because, they state, respondent never examined their joint Federal income tax ret

7491 does not apply in this ease to shift the burden ofproofto respondent because petitioners neither all ed that sec.

7491, and, therefore, it does not apply.

7491 does not apply in this case to shift the burden ofproofto respondentbecause petitioners neither alleged that sec.

7491(a) (1) . -However .this provision does not apply if the tax ayer has failed to co ply with the substantiation require ents.

In this case the determination of whether an expense is an unreimbursed employee business expense is a question of law; therefore, section 7491 is inapplicable.

The Court resolves those issues on the preponderance of the evidence in the record ; therefore section 7491 does not apply .

7491 is inapplicable to this case because petitioner did not produce credible evidence with respect to a factual issue relevant to determining his tax liability .

7491(c) . In order to meet the burden of production under section 7491(c), the Commissioner need only make a prima facie case that imposition of the penalty or addition to tax is appropriate . Higbee v . Commissioner, 116 T .C. 438, 446 (2001) . Once he has met his burden, the burden is upon the taxpayer to prove that the accuracy-related penalty does not apply because of reasonable cause , substantial authority, or the like .

6 - As applicable to the factual issues, section 7491(a~;) provides in relevant part . that the burden of proof shift's from the taxpayer to the Commissioner if the "taxpayer introduces credible evidence", has complied with the requirements t;o, substantiate items, and has maintained, required records Section 7491(c) imposes on the. Commissioner the burden of production with respect to any penalty, but the taxpayer must then establish that the penalty does not apply .

We conclude that section 7491'(a) does not apply here ZUnless otherwise stated, all .,'section references are to the Internal Revenue Code of 1986, as amended and in effect for 2006 ; and all Rule references are to the Tax Court Rules of Practice and Procedure .

Furthermore, petitioners did not claim 4 - 6 that section 7491(a) applies . Accordingly, section 7491(a) does not apply in this case .

7491 does not apply.

Section 7491(c) provides an exception to Rule 142(a)(1) and places the burden of production on the Commissioner to show that penalties are appropriate. Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). However, as the examination of the instant case began before the effective date of section 7491, July 22, 1998, section 7491(c) does not apply.

Because respondent's examination of petitioners' returns began before July 22, 1998, section 7491 does not apply .

Petitioners’ argument applies Griffin II too broadly and fails to acknowledge that Griffin II is distinguishable from this case.

Respondent has satisfied his burden of production under section 7491 (c) The accuracy-related penalty does not apply with respect to any portion of the underpayment if it is shown that the taxpayer had reasonable cause and acted in good faith .

The Court concludes that section 7491 does not apply here because petitioner has not produced any evidence that establishes the preconditions for its application .

7491(a), which shifts the burden of proof to the Commissioner in certain situations. This Court concludes that sec. 7491 does not apply because petitioner has not produced any evidence that establishes the preconditions for its application.

7491(a), which shifts the burden of proof to the Commissioner in certain situations. This Court concludes that sec. 7491 does not apply because petitioner has not produced any evidence that establishes the preconditions for its application.

7491 is inapplicable.

Discussion Because there are no factual matters in dispute in this case, section 7491 is inapplicable.

In this case, section 7491 is inapplicable because petitioner did not introduce any credible evidence with respect to the gambling winnings and Social Security benefits and failed to comply with the substantiation and recordkeeping requirements.

Section 7491 does not apply because petitioner has failed to substantiate his deductions and provide credible evidence.

Because petitioner failed to comply with the requirements of section 7491(a)(2), however, section 7491 is inapplicable.

Section 7491 does not apply because petitioner has failed to substantiate his deductions.

7491 places the burden of proof on the Commissioner as to that issue. See sec. 7491(a); Rule 142(a)(2). Sec. 7491 applies to court cases arising in connection with examinations commencing after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(2), 112 Stat. 726. Because the examination underlying this case commenced before July 23, 1998, sec. 7491(a) does not apply to shift the burden of proof to respondent.

7491(a), which shifts the burden of proof to the Commissioner in certain situations. This Court concludes that sec. 7491 does not apply because petitioner has not produced any evidence that establishes the preconditions for its application.

In this case, section 7491 is inapplicable because petitioner did not introduce any credible evidence with respect to the origination of his disability and failed to comply with the substantiation, cooperation, and record-keeping requirements.

7491(a) which shifts the burden of proof to the Commissioner in certain situations. This Court concludes that sec. 7491 does not apply because petitioner has not produced any evidence that establishes the preconditions for its application.

Because the alimony deduction issue is a question of law, section 7491 is inapplicable, and the Court decides the issue without regard to the burden of proof.

Section 7491 does not apply here because petitioner has failed to substantiate his deductions and provide evidence other than his own testimony.

Discussion Because there is no factual dispute in this case, section 7491 is inapplicable.

Section 7491 does not apply in this case because petitioner did not meet the substantiation requirements.

Section 7491(a) does not apply in this case to shift the burden of proof to respondent.

Discussion The resolution of the issue in this case does not depend on which party has the burden of proof; therefore section 7491 does not apply here.

7491, which shifts the burden of proof to the Secretary in certain circumstances, is inapplicable to this case.

Discussion Section 7491, which shifts the burden of proof to the Secretary in certain circumstances, is inapplicable to this case because examination of petitioner's 1993 tax return commenced prior to July 22, 1998, the effective date of section 7491.

7491 is inapplicable.

Section 7491 does not apply because petitioner has failed to substantiate her deductions and provide credible evidence.

Because the unreimbursed employee business expense issue is a question of law, section 7491 is inapplicable, and the Court decides the issue without regard to the burden of proof.

Because petitioner failed to comply with the requirements of section 7491(a)(2), however, section 7491 is inapplicable.

Because petitioner failed to comply with the requirements of section 7491(a)(2), however, section 7491 is inapplicable.

7491 does not apply in this case because the underlying examination began before July 22, 1998, see Internal Revenue Service Restructuring and Reform Act of 1998, Pub.

Because the Court decides the issue in this case without regard to the burden of proof, section 7491 is inapplicable.

The Court resolves those issues on the preponderance of the evidence in the record; therefore section 7491 does not apply here.

Section 7491 does not apply because this case involves a legal issue.

7491, regarding the shifting of the burden of proof, is generally effective for court proceedings arising in connection with examinations commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. The examination of petitioners’ 1995 return commenced in 1997. Accordingly, sec. 7491 does not apply in the present case.

Therefore section 7491 does not apply here.

Section 7491(a), which shifts the burden of proof to the Commissioner under certain circumstances, does not apply with respect to this factual circumstance because petitioners neither alleged that section 7491 was applicable nor established that they fully complied with the statutory substantiation requirements of section 7491, as shown below.

7491 does not apply in this case to shift the burden of proof to respondent if for no other reason than that petitioner failed to establish that he fully complied with the substantiation requirements of sec.

Because the unreimbursed employee business expense issue is a question of law, section 7491 is inapplicable, and the Court decides the issue without regard to the burden of proof.

- 4 - Discussion Because petitioners did not comply with the requirements of section 7491(a), section 7491 is inapplicable here.

Because the issue in this case is a question of law, section 7491 is inapplicable, and the Court decides the issue without regard to the burden of proof.

Section 7491 is inapplicable here because petitioner has not complied with the requisite substantiation requirements.

- 8 - Although the examination of petitioner’s 1998 individual return commenced after July 22, 1998, respondent contends petitioner does not meet the requirements of section 7491(a). Petitioner does not contend otherwise. The Court concludes that section 7491(a) is inapplicable.

Because the Court decides this case without regard to the burden of proof, section 7491 is inapplicable.

We also note that section 7491(a), which in certain cases shifts the burden of proof to the Commissioner, does not apply to employment tax determinations.

7491 is inapplicable to this case.

Section 7491 is inapplicable here because petitioners have not complied with the requisite substantiation requirements.

Section 7491 does not apply because this case involves a legal issue.

Section 7491 does not apply in this case because petitioners did not cooperate with respondent during the audit.

7491 does not apply in this case to shift the burden of proof to respondent because petitioners neither alleged that sec.

Section 7491 does not apply because this case involves a legal issue.

7491 does not apply because the examination in this case began before its effective date.

Section 7491 does not apply because petitioner did not substantiate his deductions.

7491, which, under certain circumstances, shifts the burden of proof to the Commissioner, is inapplicable because the examination in this case began before July 22, 1998, the effective date of that section.

7491 does not apply in this case to shift the burden of proof to respondent because petitioner neither alleged that sec.

7491 does not apply to shift the burden of proof to respondent because petitioner has not established that he complied with the requirements of sec.

Section 7491 is inapplicable because petitioner has not complied with the requisite substantiation requirements.

Discussion Because the Court decides this case without regard to the burden of proof, section 7491 is inapplicable.

7491 does not apply.

Section 7491 is inapplicable here because petitioners have not complied with the requisite substantiation requirements.

7491 does not apply to shift the burden of proof to respondent because petitioner has neither alleged that sec.

7491 does not apply in this case to shift the burden of proof to respondent because petitioner neither alleged that sec.

Section 7491 does not apply in this case to place the burden of proof on respondent because petitioner neither alleged that section 7491 was applicable nor established that he fully complied with the substantiation requirements of section 7491(a)(2)(A).

7491 does not apply in this case to place the burden of proof on respondent because petitioner neither alleged that sec.

Section 7491, which is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of its enactment by section 3001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726, does not apply to place the burden of proof on respondent.

7491 does not apply to shift the burden of proof to respondent because petitioners have neither alleged that sec.

7491 does not apply to shift the burden of proof to respondent because petitioners have neither alleged that sec.

7491, which shifts the burden of proof to the Secretary in certain other circumstances, does not apply to employment tax disputes.

7491(a) does not apply here.

7491 does not apply to shift the burden of proof to respondent because petitioner has neither alleged that sec.

The record reflects that section 7491 does not apply in this case.

7491 does not apply to shift the burden of proof to respondent on these issues because petitioner has neither alleged that sec.

7491 does not apply to shift the burden of proof to respondent on these issues because petitioners have neither alleged that sec.

7491 is inapplicable in this case because petitioners’ examination commenced prior to July 22, 1998.

7491 is inapplicable in the present case because respondent commenced petitioners’ examination before July 22, 1998.

Section 7491 does not apply in this case because petitioner has not complied with all applicable substantiation requirements.

Section 7491 does not apply in this case because petitioner has not complied with all applicable substantiation requirements, including those of section 274(d).

7491 does not apply to shift the burden of proof to respondent because petitioner has neither alleged that sec.

7491 does not apply in this case to place the burden of proof on respondent because petitioner neither alleged that sec.

7491 is inapplicable in these cases because petitioners’ respective examinations commenced prior to July 22, 1998.

7491 is inapplicable in these cases because petitioners’ respective examinations commenced prior to July 22, 1998.

We need not decide who bears the burden of proof.

We need not decide who bears the burden of proof because the parties have provided sufficient evidence to enable us to decide the dis- puted valuation questions by a preponderance of the evidence.

We need not decide the effect of this error as it does not affect our resolution of this case.

In any event, on the basis of the record before us, we have doubts as to whether petitioners have established that all of the requirements for shifting the burden of proof under that section have been met.

6662(b)(2), we need not decide whether the penalty should also be sustained on the ground ofnegligence under sec.

2 Because we decided this issue on a preponderance ofthe evidence, we need not decide whether the burden ofproofshifts to the Commissioner under section 7491.

2 Because we decided this issue on a preponderance ofthe evidence, we need not decide whether the burden ofproofshifts to the Commissioner under section 7491.

In this case, it is unclear whether respondent bears any burden of production under section 7491(c) because it is not clear whetherthe examination commenced after July 22, 1998, the effective date ofsection 7491.

We need not decide whether this special rule applies to the petitioners' 2004 return.

Because we hold that petitioner was not engaged in an active trade or business during 2006, we need not decide whether petitioner's Schedule C expenses were substantiated.

Ifsection 1034 doesn't save Gaggero from a deficiency for 1997, we then need to determine whether he is liable for an accuracy-related penalty under section 6662.5 5 Because we depide this case on a preponderance ofthe evidence, we need not decide whether the burden ofproofshifts to the Commissioner under section 7491.

Because we decide on the preponderance ofthe evidence whether petitioners were engaged in the active conduct ofa trade or business during 2006, we need not decide whether section 7491 applies to this issue.

Because we find that the petitioners are not entitled to deduct any of Maguire's disputed expenses, we need not decide whether any portion ofthose deductions is subject to the limitations ofsection 911(d)(6).

We need not decide that question here because we find that the record establishes that the criteria for the imposition of the sec.

In a case where the standard of proof is based on a e preponderance of the evidence, as it is here, the Court may decide the case on the weight of the evidence and need not decide it on an allocation of the burden of proof.

As the only issue decided in this Opinion i s decided as a matter of law, we need not decide in this Opinion which party bears the burden of proof .

We need not decide which party bears the burden of proof because we decide this case without regard to the burden of proof .

We need not decide whether section 7491(a) applies to that issue because we resolve it upon a preponderance of the evidence .

Petitioner has not alleged that section 7491(a) applies ; however, we need not decide whether the burden shifted to respondent pursuant to section 7491 (a) ecause our analysis is based on the record before the Court and not on who bears the burden of proof .

ration instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under section 215, (C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, 5 We need not decide whether sec.

5 We need not decide whether sec.

9 We need not decide whether sec.

)(2) exempts the following distributions from the additional tax if the distributions are made: (1) To an employee age 59-1/2 or older; (2) to a beneficiary (or to the estate of the employee) on or after the death of the employee; (3) on account of the employee being disabled; (4) as part of a 4 We need not decide whether sec.

Commissioner, 312 F.2d 311, 6 We need not decide whether sec.

7491 does not alter the outcome, however, we need not decide whether its provisions are inapplicable in one or both of these cases.

7491 does not alter the outcome, however, we need not decide whether its provisions are inapplicable in one or both of these cases.

Petitioners’ Contention In their petition, petitioners contend that respondent erred because: 3 We need not decide whether sec.

3We need not decide whether sec.

Petitioners’ Contention In their petition, petitioners contend that respondent erred because: 3 We need not decide whether sec.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified condi- tions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified conditions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer meets certain conditions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified conditions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified condi- tions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified condi- tions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified conditions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified condi- tions.

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified condi- tions.

24-25, we hold that she doesn't have a reasonable-cause defense to the penalties.

Finally, we cannot accept petitioner's argument that Letter 4364C is credible evidence ofhis underlying liability shifting the burden ofproofto respondent pursuant to section 7491.

Petitioner has not shown and does not contend that section 7491 applies.

Pursuant to section 7491(a)(1), the burden ofproofas to factual matters may shift from the taxpayerto the Commissioner under certain circumstances.

Petitioner has not alleged that section 7491 applies, nor did she introduce the requisite evidence to invoke that section.

Petitioners have neither alleged that section 7491 applies nor established that they complied with the requirements ofsection 7491(a)(2) to substantiate items, to maintain required records, and to fully cooperate with respondent's reasonable requests.

Petitioners have not argued or otherwise demonstrated that section 7491 applies and therefore bear the burden ofproofwith respect to the income tax adjustments.

Petitioners have not argued or otherwise demonstrated that section 7491 applies and therefore bear the burden ofproofwith respect to the income tax adjustments.

Petitioner did not allege that section 7491 applies, nor did he either introduce the requisite evidence or satisfy the substantiation, recordkeeping, and other requirements ofthat section.

Petitioner has not shown and does not contend that section 7491 applies.

Petitioners did not allege that section 7491 applies, nor did they introduce the requisite evidence to invoke that section.

Petitioners argue that pursuant to section 7491(a) the burden ofproofhas shifted to respondent and that uncertainty on any issue in this case should be resolved in their favor.

Petitioner did not allege that section 7491 applies, nor did he introduce the requisite evidence to invoke that section; therefore, the burden ofproofremains on petitioner.6 II.

20.2031-1(b), Estate Tax Regs., referencing "[a] willing buyer and a willing seller * * * both having reasonable knowledge ofrelevant facts." - 30 - [*30] burden ofproofto respondent pursuant to section 7491.

Accordingly, we hold that petitioners are liable for the section 6651(a)(2) additions to tax.

Petitioner did not allege that section 7491 applies, nor did she introduce the requisite evidence to invoke that section; therefore, the burden of proofremains on petitioner.

He also asserts that the burden ofproofshould be shifted to the IRS pursuant to section 7491.

We now turn to whether petitioners have adduced credible evidence regarding the two immediate issues for which the burden ofproofmay be shifted pursuant to section 7491: (1) whetherpetitioners held the Memorial Drive property either for productive use in a trade or business or for investment at the time ofthe section 1031 exchange; and (2) whetherpetitioners properly allocated fair market values to the exchangedproperties in the purchase agreement.

However, pursuant to section 7491(a)(1), the burden of proofon factual issues that affect the taxpayer's tax liability may be shifted to the Commissioner where the "taxpayer introduces credible evidence with respect to * * * such issue." The burden will shift only ifthe taxpayerhas, inter alia, - 9 - [*9] complied with substantiat

Petitioners have not argued that section 7491 applies and therefore bear the burden ofproofwith respect to the income tax adjustments (we address the burden ofproofon the constructive dividend issue below).

Petitioners have not argued that section 7491 applies in this case and therefore bear the burden ofproofwith respect to most issues (we address the burden ofproofon the constructive dividend issue below).

Courts have consistently held that the standard to be applied in section 6651 is one of"ordinary business care and prudence", as required by section 301.6651-1(c)(1), Proceed.

On account ofpetitioner's poor records and documentation relating to the remaining claimed expense deductiions at issue, no shift in the burden ofproof under section 7491 applies, and petitioners bear the burden ofsubstantiating the disputed meal and vehicle mileage expenses and gambling losses.

With respect to those issues; therefore, the burden cfproofshifts to respondentpursuant to section 7491(a)(1).

Petitioners have not alleged that section 7491 applies, nor did they introduce a sufficiency of evidence to invoke that section; therefore, the burden of proof remains on petitioners.

Pursuant to section 7491(a) (1), the burden of proof as to factual matters may shift from the taxpayer to the Commissioner under certain circumstances.

Pursuant to section 7491(a) (1), the burden of proof as to factual matters may shift from the taxpayer to the Commissioner under certain circumstances.

Petitioners do not argue that the burden of proof shifts to respondent pursuant to section 7491(a), nor have they shown that the threshold requirements of section 7491(a) have been met for any of the determinations at issue.

Section 6654 (a) imposes an addition to tax for a taxpayer s failure to pay estimated income tax.4 Pursuant to section 7491(c), respondent has the burden of productioniwith respect to any penalty, 3For the purpose of calculating the estimated expenses for tax years 1999, 2000, 2001, 2002, and 2003, the cost of the Ford Expedition will not be included because etitioner cannot deduct the cost of the Ford Expedition for th

Petitioner did not allege that section 7491 applies, nor did he introduce the requisite evidence to invoke that section; therefore, the burden of proof remains on petitioner.

Pursuant to section 7491 (a) , the burden of proof on factual issues that affect the taxpayer's income and estate or gift tax liability (imposed by subtitles A and B of title 26 United States Code) may shift to the Commissioner in certain circumstances .

Pursuant to section 7491(a) , the burden of.

Petitioner has not alleged that,section 7491 applies.

For the burden of proof to shift to the Commissioner, section 7491 requires taxpayers to prove that they have maintained adequate records, satisfied certain substantiation requirements,.and cooperated fully with the Commissioner.

Under certain circumstances, the burden of proof as to factual matters may shift pursuant to section 7491(a) from the taxpayer to the Commissioner, but only if the taxpayer introduces credible evidence regarding a factual matter affecting her liability and only if she has complied with substantiation -31- requirements , has maintained all required records, and has cooperated with the IRS 's reasonable

8 - Petitioners assert that their_ 2000, 2001 , and 2002 Forms 1040 along with their testimony at trial constitute credible evidence of the nature and amount - of their income for the year s .in issue and argue that the burden shou .ld.be,.shifted to respondent pursuant to section 7491(a)(1) on those issues .

Petitioners have neither alleged that section 7491 applies nor established that they complied with the requirements of section 7491(a)(2) to substantiate items, to maintain required records, and to fully cooperate with respondent's reasonable requests .

Pursuant to section 7491(c), respondent bears 21 - the burden of production with respect to petitioner's liability for any penalty or addition to tax .

Petitioner has not alleged that section 7491 applies, nor did he introduce the requisite evidence to invoke that section ; therefore, the burden of proof remains on him .

Petitioners have not alleged that section 7491 applies, nor did they introduce th e .requisite evidence to invoke that section ; therefore, the burden of proof remains on petitioners .

Accordingly, we hold that petitioners' section 7491 argument that the burden .is shifted is of no consequence and does not affect the outcome of this case .

-Petitioner did not allege that section 7491 applies, nor did he introduce the requisite evidence to invoke that section; stherefore, the burden pf proof remains on-petitioner.

Petitioner has not alleged that section 7491 applies, nor did he introduce the requisite evidence to invoke that section ; therefore, the burden of proof remains on petitioner .

Petitioner has not alleged that section 7491 applies nor otherwise satisfied the requirements of that section; therefore, the burden of proof remains on petitioner .

Pursuant to section 7491 .(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances .

Consequently, we hold that petitioner has the burden of proof as to any disputed.

Petitioners have not alleged-that section 7491 applies ; therefore, the burden of proof remains-on petitioners .

Petitioner has not alleged that section 7491 applies, nor did she introduce the requisite evidence to invoke that section ; therefore, the burden of proof remains on petitioner .

As in Petaluma, we hold that LKF should be disregarded for Federal tax purposes and the partners cannot have outside bases in a disregarded entity .

Brian has not contended that section 7491 applies so as to shift the burden of proof ; on the record in the instant case, if such a contention 6Unless indicated otherwise, all Rule references are to the Tax Court Rules of Practice and Procedure .

Pursuant to section 7491(c), respondent bears and has met the burden of production relating to section 6651(a)(2) for 2002 .

We hold-that to the extent petitioners are not liable for the 40-percent penalty under section 6662(h) (because their.

Accordingly, we hold that respondent satisfied his burden .

Petitioner did not argue that section 7491 applies .

Pursuant to section 7491 ( c), the Commissioner bears the burden of production with respect to the imposition of any penalty .

Petitioner has not contended that secti n 7491 applies so as to shift the burden of proof; on the recor in the instant case, if such a contention had been made, then w would have concluded that the requirements of section 7491(a (2) have not been met, and so the burden of proof would not ha e been shifted .

We hold that petitioner failed - 7 - to carry his burden of proving that respondent's determination was incorrect .

On the basis of the foregoing, we hold that respondent has satisfied the burden of production under section 7491(c) .

However, because respondent has determined that petitioner is liable for additions to tax and a penalty pursuant to section 7491(c), the burden of production is on respondent, and we must determine whether respondent has satisfied his burden of production .

Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certai circumstances .

On the basis of the foregoing, we hold that respondent has satisfied the burden of production under section 7491(c).

Petitioners have not contended that section 7491 applies so as to shift the burden of proof ; on the record in the instant case, if such a contention had been made, then we would have concluded that the requirements of section 7491(a)(2) had not been met, and so the burden of proof would not have been shifted .

For the following reasons, we hold that petitioners have not satisfied this burden .

Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances .

Additions to Tax Pursuant to section 7491 (c), the Commissioner has th$ burden of production as to whether a taxpayer is liable for an aI dition to tax .

Pursuant to section 7491, the burden of proof as to factual matters shifts to the Commissioner under certain circumstances .

However, pursuant to section 7491(a)(1), the burden of proof on factual issues that affect the taxpayer's tax liability may be shifted to the Commissioner where the "taxpayer introduces credible evidence with respect to * * * such issue".

However, pursuant to section 7491 (a)(1), the burden of proof on factual issues that affect the taxpayer' s tax liability may be shifted to the Commissioner where the "taxpayer introduces credible evidence with respect t o such issue" .

Pursuant to section 7491(c), respondent bears the burden of production with respect to the issue presented under section 6662 .

However, petitioners have neither alleged that section 7491 applies nor established their compliance with the requirements of section 7491(a)(2)(A) - 5 - and (B) to substantiate items, maintain records, and cooperate fully with respondent's reasonable requests .

Pursuant to section 7491, the burden of proof as to factual matters shifts 7 The stipulation of facts states that three people pleaded guilty to crimes related to their involvement with RTP.

Pursuant to section 7491, the burden of proof as to factual matters shifts to the Commissioner if the taxpayer introduces credible evidence and satisfies the requirement to substantiate items.

Section 7491 applies only if the taxpayer complies with substantiation requirements, maintains all required records, and cooperates with the Commissioner for witnesses, information, documents, meetings, and interviews .

Accordingly, we hold for petitioner with respect to this issue .

Pursuant to section 7491 a), the burden of proof as to factual matter s shifts to the Commissioner under certain circumstances .

Consequently, we hold that petitioners have the burden of proof as to any disputed factual issue.

Section 1.6664-4(b)(1), Income Tax Regs., specifically states: “Circumstances that may indicate reasonable cause and good faith include an honest misunderstanding of fact or law that is reasonable in light of * * * the experience, knowledge, and education of the taxpayer.” Pursuant to section 7491(c), the Commissioner has the burden of production with respect to a section 6662 accuracy-related penalty.

Pursuant to section 7491,7 the burden of proof as to factual matters shifts to the Commissioner under certain circumstances.

On the basis of the record, we hold that section 7491(a) does not operate to place the burden of proof on respondent; in short, petitioners did not introduce testimony evidence sufficient to place in doubt the exactitude of the documentary record.

7491 applies to examinations commencing after July 22, 1998, and therefore applies here.

On the basis of the record, we hold that section 7491(a) does not operate to place the burden of proof on respondent; in short, petitioner did not introduce testimonial (or other) evidence sufficient to place in doubt the documentary evidence in the record.4 Petitioner claims that he disputed his debt with MBNA in the fall of 1999, a

Pursuant to section 7491,3 the burden of proof as to factual matters shifts to respondent under certain circumstances.

Pursuant to section 7491, the burden of proof as to factual matters shifts to the Commissioner under certain circumstances.

Petitioners have neither alleged section 7491 applies nor established their compliance with the requirements of section 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and cooperate fully with the Commissioner’s reasonable requests.

Section 7491 applies here in that the examination of a 2000 tax return began after the statute’s effective date.

Petitioners have neither alleged section 7491 applies nor established their compliance with the requirements of section 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and cooperate fully with the Commissioner’s reasonable requests.

Section 7491 provides that the burden of proving facts relevant to a deficiency may shift to the Commissioner under section 7491 if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining a tax liability, provided the taxpayer has substantiated all items at issue and has gene

7491 applies to court proceedings arising from examinations commencing after July 22, 1998.

7491 applies only to court proceedings arising from examinations commencing after July 22, 1998, Internal Revenue Service Restructuring & Reform Act of 1998, Pub.

7491 applies in these cases.

7491 provides that, under certain circumstances, the burden of proof is on the Secretary with respect to a taxpayer’s liability for taxes, penalties, and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998.

Petitioner has not presented any evidence establishing a reasonable cause for his failure to file a return, thus we hold petitioner is liable for the section 6651(a)(1) addition to tax.

Accordingly, we hold that petitioners are liable for an accuracy-related penalty pursuant to section 6662(a) with respect to the understatement of tax attributable to the deductions we have disallowed.

Provisions of section - 23 - 7491 pertinent to this case are set forth in the margin.4 Among other things, section 7491 provides that, in any court proceeding, the burden of proof as to any factual issue is on the Secretary where the taxpayer, who has satisfied certain other 4 SEC.

es 1. Deficiencies and Additions to Tax Excluding Civil Fraud The Commissioner's determinations generally are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous.2 Rule 142(a); Welch v. Helvering, 2 Sec. 7491 is inapplicable to this case. See Warbelow’s Air Ventures, Inc. v. Commissioner, 118 T.C. 579, 582 n.8 (2002) (sec. 7491 is effective for court proceedings arising in connection with examinations commencing after July 22, 1998). The U.S. Co

We therefore deem any argument by petitioners that section 7491(a) is applicable to have been waived or conceded. See Estate of Atkinson v. Commissioner, 115 T.C. 26, 35 (2000) (deeming issue not addressed in posttrial brief to be waived or conceded), aff’d, 309 F.3d 1290 (11th Cir. 2002); Estate of Blount v. Commissioner, T.C. Memo. 2004-116, slip op. at 55 n.29 (deeming burden of proof shift under section 7491 waived when the taxpayer failed to raise it), aff’d in part, rev’d and remanded in p

Petitioner’s Motion to Shift Burden of Proof Petitioner begins by moving the Court to shift the burden of proof to respondent pursuant to section 7491. We will deny this Motion because section 7491(a) by its terms can shift the burden of proof only with respect to any factual issue relevant to ascertaining the taxpayer’s liability for tax imposed by subtitle A or B of the Code. The Code imposes interest under section 6601, which is not part of subtitle A or B; accordingly, section 7491 does not

7491(a)(1) provides an exception that shifts the burden ofproofto the Commissioner as to any factual issue relevant to a taxpayer's liability for tax if: (1) the taxpayer introduces credible evidence with respect to that issue and (2) the taxpayer satisfies certain other conditions, including substantiation ofany item and cooperation with the Government's requests for witnesses, documents, other information, and meetings. Sec. 7491(a)(2). Petitioner has not raised sec. 7491, and we conclude that

7491(a).3 Deductions and credits are a matter of legislative grace, and the taxpayer bears the burden ofproving that he or she is entitled to any deduction or credit claimed. Rule 142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). II. Dependency Exemption Deduction In general a taxpayermay claim a dependency exemption deduction "for each individual who is a dependent (as defined in section 152) ofthe taxpayer for the taxable year." S

Section 7491 imposes the burden ofproofon the IRS with respect to a given factual issue where a taxpayer (1) introduces credible evidence with respect to that issue, (2) meets all applicable substantiation requirements, (3) complies with all recordkeeping requirements, and (4) cooperates with any reasonable requests for information. Sec. 7491(a); H

sioner, but that section does not apply here because we find that petitioners failed to satisfy each requirement set forth in section 7491(a)(2)(A) and (B).20 Petitioners argue that respondent has the burden ofproofirrespective ofany applicability ofsection 7491 because, they state, respondent never examined their joint Federal income tax returns for the subject years, respondent amended the answer in two ofthese cases to assert increased deficiencies, and respondent arbitrarily applied the bank

Respondent has thus carried his burden of production unde r section 7491(c) with respect to the section 6654 addition for the .2001 through 2004 tax years . The section 6654 addition to tax is mandatory unless the taxpayer can place himself within one of the computational exceptions provided for in subsection (e) thereof . Grosshandler v. Commissioner, 75 T .C . 1, 20-21 (1980) . Mr . Adler has not shown that any of the computational exceptions to section 6 .654 applies . Accordingly, we hold th

The facts of the instant case are distinguishable from those of Scar.. In the instant case., the adjustments in the notice of deficiency all relate to petitioner's 2005 income tax return . Moreover, petitioner claims that Ms . Robles reviewed his return but did not follow proper procedures. Finally, Scar involved a violation of a statutory provision, while petitioner alleges a violation of the IRM, whic h does not have the force and effect of law . See Valen Manufacturing Co . v . United States

nd his petition to include the claim that the $9 , 627 petitioner reported as a taxable distribution on his 2005 return was not taxable . OPINION Respondent argues that petitioner bears the burden of proof and that the . burden has not shifted under section 7491 (a) . Since we decide this case on the preponderance of the evidence, th e allocation of the burden of proof does not affect the outcome and need not be decided . See Knudsen .v. Commissioner , 131 T .C . 185, 189 (2008 ) ; see also Blod

We recently held that a matter the Appeals officer should have considered under sec. 6330(c)(1) was before us for review regardless of whether the taxpayer raised it with the Appeals officer. Hoyle v. Commissioner, 131 T.C. 197 (2008). In Giamelli v. Commissioner, 129 T.C. 107, 114 n.5 (2007), we noted that we need not address “whether a

Petitioner argues that if the Court has jurisdiction over the accuracy-related penalties under section 6662, respondent has not met his burden of production under section 7491(c) . Petitioner stipulated that he is contesting only the valuation misstatement penalty, and we treat this stipulation as binding on petitioner . See Rule 91(e) ; Stamos v. Commissioner , 87 T .C . at 1454-1455 . Therefore, we treat petitioner' s argument as only relating to the valuation misstatement penalties and not ch

Section 7491 regarding the burden of proof is not applicable in this case because petitioners have failed to meet the requirements of section 7491(a)(1) and (2) . These deductions are strictly a matter of legislative grace, and taxpayers bear the burden of proving they are entitled to any claimed deductions . INDOPCO, Inc . v . Commissioner, 503 U

Section 7491(a) Burden of Proof Shift In Knudsen I we stated: We do not need to decide whether petitioners have met all of the requirements under section 7491 to shift the burden of proof to respondent.

As an exception to this rule, section 7491(a) places upon the Commissioner the burden of proof with respect to any factual issue relating to liability for tax if the taxpayer maintained adequate records, satisfied the substantiation requirements, cooperated with the Commissioner, and introduced during the Court proceeding credible evidence with respect to the factual issue . Based on the following, because petitioner has not satisfied the requirements of section 7491, section 7491(a) is inapplic

nerally upon petitioner, except as may be otherwise provided by statute or determined by the Court. See Rule 142(a). For the first time on reply brief, petitioner contends, with little elaboration, that respondent has the burden of proof pursuant to section 7491. Because petitioner did not raise this argument or position in his pretrial memorandum, at trial, or on opening brief, respondent has had no opportunity to address petitioner’s position. Petitioner’s attempt to raise this argument on rep

oyees. Boles Trucking, Inc. v. United States, 77 F.3d 236, 239-240 (8th Cir. 1996); Allen v. Commissioner, T.C. Memo. 2005- 118. In certain circumstances, special statutory rules may apply to shift the burden of proof to the Commissioner. See, e.g., sec. 7491; act sec. 530(e)(4).11 However, petitioner does not contend that these provisions affect an allocation of the burden of proof in this case, and we conclude that they do not apply. Petitioner does argue, however, that respondent’s determinat

(While the burden of proof may be shifted in some cases involving taxpayers, including corporations, unlike petitioner, with a limited net worth, under section 7491, the burden shift occurs only where “the taxpayer has maintained all records required”.

By their terms, neither section 7491(a) nor section 7491(c) is applicable here . As to the former, under which the burden of proof may be placed upon the Commissioner as to factual issues relevant to a taxpayer's liability for income, estate, or gift tax, petitioner has not introduced any "credible evidence with respect to any factual issue" concerning the deficiencies determined by respondent . Nor may petitioner do so for purposes of this motion given that it lacks the power to prosecute or de

hose securities traded sporadically in the over-the-counter. market. In January 1947, the partnership registered with the Securities & Exchange Commission (SEC) to act in the capacity of a broker-dealer. From 1947 through 1957, the partnership (1) ¹ Sec. 7491, which, under certain circumstances, shifts the burden of proof to the Commissioner, is inapplicable because the examination in this case began before July 22, 1998, the effective date of that section. See Internal Revenue Service Restructu

Petitioner does not contend that respondent’s determination is arbitrary. See Helvering v. Taylor, 293 U.S. 507 (1935). The parties do not discuss the burden of proof. Because the notice of deficiency was issued in 1994, i.e., before July 22, 1998, sec. 7491 does not apply. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. - 15 - Petitioner offered no evidence showing that respondent’s determination was erroneous.5 We conclude that

taxpayers prove their time spent by “any reasonable means.” Reasonable means are not limited to “Contemporaneous daily time reports, logs, or similar documents,” 2 The Lees argued that the burden of proof should be shifted to the Commissioner under section 7491. We find, however, that they failed to cooperate fully with the IRS during the audit and IRS appeals process by failing to cooperate with the IRS’s reasonable requests for information, interviews, and documents. See sec. 7491(a)(2)(B). W

Petitioner in its petition alleges that respondent bears the burden of proof under section 7491 as to all matters inclusive of the deficiencies, additions to tax, and accuracy-related penalties.

Petitioners argue that section 7491 shifts the burden of proof to respondent with respect to the underpayment of tax.

e litigation numerous posttrial motions and had not reduced the insurance litigation verdict to final judgment. -13- OPINION We first address section 7491(a). The parties agree that the examination in this case commenced after the effective date of section 7491. The parties disagree, however, over whether the burden of proof shifts to respondent under that section. Section 7491(a)(1) may shift the burden of proof to the Commissioner of Internal Revenue with respect to any factual issue relevant

7491 does not apply to this case because the examination of petitioner's 1990, 1991, and 1992 returns began before July 22, 1998. See Internal Revenue Service Restructuring and Reform Act, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. The audit was subsequently expanded to include petitioner's 1993 tax year. - 24 Therefore, respondent bears t

sented “credible evidence” on that issue. See Higbee v. Commissioner,116 T.C. 438, 442 (2001)’ see also Blodgett v. Commissioner, 394 F.3d 1030 (8th Cir. 2005), affg. T.C. Memo. 2003-212. Nor has she proven that she complied with the requirements of sec. 7491 (a)(2)(A) and (B) to substantiate items, to maintain required records, and to cooperate fully with respondent’s reasonable requests. See Weaver v. Commissioner, 121 T.C. 273, 275 (2003). - 23 - (quoting Cepeda v. Commissioner, T.C. Memo. 19

ated parties are examined with special scrutiny when taxpayers contend that such transfers are loans. 3 Sec. 7491(a) is inapplicable because petitioner does not meet the net worth requirements of sec. 7430(c)(4)(A)(ii), which are cross-referenced in sec. 7491(a')(2)(C). - 8 - Roth Steel Tube Co. v. Commissioner, 800 F.2d 625, 630 (6th Cir. 1986), affg. T.C. Memo. 1985-58. In determining the economic reality of a related party transfer, "'the ultimate issue is * * * whether the transaction would

Section 7491 applies to examinations commenced after July 22, 1998. Information document requests in the record indicate respondent’s examination commenced on or before August 1997. - 31 - Therefore, section 7491 does not apply, and the burden of proof remains with petitioners. III. Determinations of Gross Income The definition of gross income und

Because respondent’s examination of petitioners’ returns began before July 22, 1998, section 7491 does not apply.

Section 7491 shifts the burden of proof to respondent if the taxpayer meets certain preliminary conditions. Here, not only did petitioner fail to cooperate with respondent in any regard, but he did not produce one scintilla of evidence with respect to any matter in this case. See sec. 7491(a). Therefore, section 7491(a) does not apply in this case.

Petitioners argue that section 7491 shifts the burden of proof to respondent with respect to the underpayment of tax.

8-3 C.B. 747, 994, 996 (stating that the taxpayer has the burden of proving it meets the requirements in sec. 7491(a)(2)). Except for the items raised as new matter in respondent’s amendment to answer, we conclude that petitioner bears the burden 83 Sec. 7491 was added to the Code in the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, and is effective with respect to court proceedings arising in connection with examinations commencing aft

(As we noted in Downing I note 31, section 7491, which shifts the burden of proof to the Commissioner if the taxpayer meets certain conditions, does not apply in the instant case because the examination of petitioners’ tax returns began before the effective date of section 7491.) Under section 7430(c)(4)(B)(i), Sandra shall not be treated as having satisfied the prevailing party req

s of the specific property that petitioners actually contributed to the trust in 1992 and 1993. In certain cases, if an individual introduces credible evidence with respect to a factual issue relevant to ascertaining his or her proper tax liability, sec. 7491 places the burden of proof on the Commissioner as to that issue. See sec. 7491(a); Rule 142(a)(2). Sec. 7491 applies to court cases arising in connection with examinations commencing after July 22, 1998. See Internal Revenue Service Restruc

slative grace, and petitioners bear the burden of proving that they are entitled to the deductions claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).11 11 The examination in this case began Sept. 24, 1997; therefore, sec. 7491 is inapplicable. Higbee v. Commissioner, 116 T.C. 438, 440 (2001) (sec. 7491 applies to examinations (continued...) - 25 - Ordinarily, a taxpayer is permitted to deduct the ordinary and necessary expenses that he pays or incurs during the ta

The general rule does not apply, however, under circumstances where section 7491 places the burden of proof or production on the Commissioner.8 The Commissioner bears the burden of proof with respect to a factual issue relevant to ascertaining a taxpayer’s liability for income tax, if the taxpayer introduces credible evidence with respect to that factual issue.

conclude that the burden of proof has not shifted to respondent under sec. 7491(a) with respect to the remaining issues. The record in this case establishes that the examinations of the 1995 and 1996 returns commenced before July 22, 1998, rendering sec. 7491 inapplicable to those years. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. As for 1997, (continued...) - 4 - For the reasons stated below, we hold that the notice of deficie

conceded, the burden is on petitioners to show that the additions to tax and accuracy-related penalties should not apply. Petitioners did not appear at trial and did not testify as to facts underlying their investment in the Hoyt cattle operation 4 Sec. 7491, which under some circumstances shifts the burden of proof or production to the Commissioner, is inapplicable in this case. Sec. 7491 applies only to court proceedings arising in connection with examinations commencing after July 22, 1998.

conclude that the burden of proof has not shifted to respondent under sec. 7491(a) with respect to the remaining issues. The record in this case establishes that the examinations of the 1995 and 1996 returns commenced before July 22, 1998, rendering sec. 7491 inapplicable to those years. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. As for 1997, (continued...) - 4 - For the reasons stated below, we hold that the notice of deficie

The general rule does not apply, however, under circumstances where section 7491 places the burden of proof or production on the Commissioner.8 The Commissioner bears the burden of proof with respect to a factual issue relevant to ascertaining a taxpayer’s liability for income tax, if the taxpayer introduces credible evidence with respect to that factual issue.

The general rule does not apply, however, under circumstances where section 7491 places the burden of proof or production on the Commissioner.8 The Commissioner bears the burden of proof with respect to a factual issue relevant to ascertaining a taxpayer’s liability for income tax, if the taxpayer introduces credible evidence with respect to that factual issue.

real property located in Dallas, Texas (the Dallas property). The business debt became worthless in 1991 after becoming an asset of the estate. Both the Argyle property and the Dallas property (together, the properties) secured debts of petitioner 1 Sec. 7491, which, under certain circumstances, shifts the burden of proof to the Commissioner, is inapplicable because the examination in this case began before July 22, 1998, the effective date of that section. See Internal Revenue Service Restructu

7491 applies to court proceedings arising in connection with examinations beginning after July 22, 1998. Because the examination of petitioner’s returns commenced before July 23, 1998, sec. 7491(a)(1) is inapplicable to this case. - 21 - introduce evidence sufficient, if believed, to demonstrate by a preponderance of the evidence that respond

er’s determinations generally are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous.1 Rule 142(a); Welch v. Helvering, 1 The examination in this case commenced prior to July 22, 1998. Accordingly, sec. 7491 is inapplicable. See Warbelow’s Air Ventures, Inc. v. Commissioner, 118 T.C. 579, 582 n.8 (2002), affd. 80 Fed. Appx. 16 (9th Cir. 2003). - 24 - 290 U.S. 111, 115 (1933); Durando v. United States, 70 F.3d 548, 550 (9th Cir. 1995). The U.S.

commencing after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 726. The record indicates that the examinations of petitioners’ returns began prior to the effective date of sec. 7491. Thus, sec. 7491 is inapplicable to this case. See Seawright v. Commissioner, 117 T.C. 294 (2001). - 40 - There is an exception for the substantial understatement of income. Section 6501(e) provides in pertinent part: SEC. 6501(e). Substant

his management position. In 1987, petitioner filed a lawsuit for damages and ultimately reached a settlement with Smith and Fowler. The 1989 agreement provided a number of options to effect the change in ownership of the partnership. Petitioner’s 2 Sec. 7491 is inapplicable because the examination of petitioner's returns began before the statute's effective date. Thus, petitioner bears the burden of proof on all questions of fact. Rule 142(a); Monahan v. Commissioner, 109 T.C. 235, 236 (1997).

commencing after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 726. The record indicates that the examinations of petitioners’ returns began prior to the effective date of sec. 7491. Thus, sec. 7491 is inapplicable to this case. See Seawright v. Commissioner, 117 T.C. 294 (2001). - 40 - There is an exception for the substantial understatement of income. Section 6501(e) provides in pertinent part: SEC. 6501(e). Substant

slative grace, and petitioners bear the burden of proving that they are entitled to the deductions claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).11 11 The examination in this case began Sept. 24, 1997; therefore, sec. 7491 is inapplicable. Higbee v. Commissioner, 116 T.C. 438, 440 (2001) (sec. 7491 applies to examinations (continued...) - 25 - Ordinarily, a taxpayer is permitted to deduct the ordinary and necessary expenses that he pays or incurs during the ta

etitioner contends in the alternative that the $100,000 was a gift and thus is excludable from gross income under section 102(a). Respondent replies that petitioner’s 1996 fraudulent purpose, which led to the bankruptcy court’s voiding of the 1996 7 Sec. 7491, which shifts the burden of proof to the Commissioner if the taxpayer meets certain conditions, does not apply in the instant case because the parties stipulated that the examination of petitioner’s tax returns began before July 22, 1998, t

slative grace, and petitioners bear the burden of proving that they are entitled to the deductions claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).11 11 The examination in this case began Sept. 24, 1997; therefore, sec. 7491 is inapplicable. Higbee v. Commissioner, 116 T.C. 438, 440 (2001) (sec. 7491 applies to examinations (continued...) - 25 - Ordinarily, a taxpayer is permitted to deduct the ordinary and necessary expenses that he pays or incurs during the ta

ect to the Plan in two capacities: (a) A fiduciary of the Plan (sec. 4975(e)(2) (A)), and (b) the 100-percent owner of Rollins, the employer sponsoring the Plan (subpars.(E) and (H) of sec. 4975(e)(2)). Respondent contends that the Plan's loans to 6 Sec. 7491, relating to burden of proof, was not drawn in issue by either side. However, for completeness, and in light of petitioner's pro se status, we note the following: Sec. 7491(a) provides for shifting the burden of proof (if certain conditions

has satisfied the burden of showing that the accuracy- related penalty is appropriate because the understatement of tax exceeds the greater of 10 percent of the tax required to be shown on the return, or $5,000.5 In order to avoid imposition of the 4Sec. 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. The evidence

our opening and closing inventories are $1,862,892 and $1,477,361.00. For the tax year ending 5/31/97, your opening and closing inventories are $1,477,361.00 and $2,419,747. 6 The examination in this case commenced before July 22, 1998. Accordingly, sec. 7491 is inapplicable. See Warbelow’s Air Ventures, Inc. v. Commissioner, 118 T.C. 579, 582 n.8, (2002), affd. 80 Fed. Appx. 16 (9th Cir. 2003). - 13 - c. Cost of Sales 5/31/96 $1,477,361.00 5/31/97 $2,419,747.00 Since you are being required to u

was unreasonable or in any 2 The audit of petitioner's 1992 and 1993 income taxes commenced prior to July 22, 1998, the effective date of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 685. Therefore, sec. 7491 is inapplicable to this proceeding. . - 10 - Under Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), inadequately substantiated expenses may be estimated by a court where it is shown that a taxpayer is unquestionably entitled to some deduct

commencing after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 726. The record indicates that the examinations of petitioners’ returns began prior to the effective date of sec. 7491. Thus, sec. 7491 is inapplicable to this case. See Seawright v. Commissioner, 117 T.C. 294 (2001). - 40 - There is an exception for the substantial understatement of income. Section 6501(e) provides in pertinent part: SEC. 6501(e). Substant

slative grace, and petitioners bear the burden of proving that they are entitled to the deductions claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).11 11 The examination in this case began Sept. 24, 1997; therefore, sec. 7491 is inapplicable. Higbee v. Commissioner, 116 T.C. 438, 440 (2001) (sec. 7491 applies to examinations (continued...) - 25 - Ordinarily, a taxpayer is permitted to deduct the ordinary and necessary expenses that he pays or incurs during the ta

slative grace, and petitioners bear the burden of proving that they are entitled to the deductions claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).11 11 The examination in this case began Sept. 24, 1997; therefore, sec. 7491 is inapplicable. Higbee v. Commissioner, 116 T.C. 438, 440 (2001) (sec. 7491 applies to examinations (continued...) - 25 - Ordinarily, a taxpayer is permitted to deduct the ordinary and necessary expenses that he pays or incurs during the ta

conclude that the burden of proof has not shifted to respondent under sec. 7491(a) with respect to the remaining issues. The record in this case establishes that the examinations of the 1995 and 1996 returns commenced before July 22, 1998, rendering sec. 7491 inapplicable to those years. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. As for 1997, (continued...) - 4 - For the reasons stated below, we hold that the notice of deficie

7491 applies to court proceedings arising in connection with examinations beginning after July 22, 1998. Because the examination of petitioner’s returns commenced before July 23, 1998, sec. 7491(a)(1) is inapplicable to this case. - 21 - introduce evidence sufficient, if believed, to demonstrate by a preponderance of the evidence that respond

7491, which is effective for court proceedings arising in connection with examinations commencing after July 22, 1998, shifts the burden of proof to the Commissioner in certain circumstances and places on the Commissioner the burden of production with respect to penalties and additions to tax. Sec. 7491 is inapplicable in these cases because t

Petitioner concedes that section 7491 does not apply to shift the burden of proof to respondent.

ject years using the bank deposits method. Revenue Agent Dugger adequately explained how petitioner’s income was computed. Petitioner had an opportunity to show error in respondent’s computations, e.g., that some or all of the deposits represented 4Sec. 7491, which is effective for court proceedings arising in connection with examinations commencing after July 22, 1998, shifts the burden of proof to the Commissioner in certain circumstances and places on the Commissioner the burden of production

conclude that the burden of proof has not shifted to respondent under sec. 7491(a) with respect to the remaining issues. The record in this case establishes that the examinations of the 1995 and 1996 returns commenced before July 22, 1998, rendering sec. 7491 inapplicable to those years. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. As for 1997, (continued...) - 4 - For the reasons stated below, we hold that the notice of deficie

Although section 7491 may operate in specified - 8 - circumstances to place the burden on the Commissioner, the statute is effective only for court proceedings that arise in connection with examinations commencing after July 22, 1998.

by Demetree and Associates should have been attributed to David because he, and not Arthur, controlled the business. Respondent asserts that: David performed the managing and leasing activities relating to Demetree and Associates; Arthur was never 3 Sec. 7491 is inapplicable because the examination of petitioners’ returns began before the statute’s effective date. - 9 - present in the office; David routinely signed Arthur’s name; and Arthur, who was in his seventies during the years in issue, wa

e been alleged convoluted living arrangements that have no discernable substance except for attempts to take advantage of tax deductions and credits. Often this results from advice given by tax return preparers who know better. This is a dangerous 2 Sec. 7491 dealing with the burden of proof has no application to this case because petitioner has not satisfied the requirements of sec. 7491(a). - 8 - game, and we urge such taxpayers and their return preparers to be more circumspect. Not only do th

on for services and interest (which were of amounts sufficient to require him to file Federal income tax returns), and that petitioner did not file Federal income tax returns for 1996, 1997, 1998, and 1999. Thus, we find that respondent has met his 9Sec. 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. The evidence

Whether Respondent Bears the Burden of Proof Under Section 7491 Petitioner contends that respondent bears the burden of proof under section 7491(a).2 We disagree.

7491 is inapplicable because the examination began before July 22, 1998, the section's effective date. Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 685, 726. $90,000 income reported) and $42,000 (i.e., $132,000 income received minus $90,000 income reported) relating to 1992 and 1994, re

nal, family, and living expenses and that payments of these expenses by Waterfall Farms constitute constructive dividends to the Hubers. On the other hand, petitioners assert that all the expenditures are reasonable and 3Under certain circumstances, sec. 7491 places the burden of proof or production on the Commissioner. Sec. 7491 applies to court proceedings arising in connection with tax examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, P

7491, which shifts the burden of proof to the Commissioner if the taxpayer meets certain conditions, does not apply in the instant case because the examination of petitioners’ tax returns began in 1996 or 1997, before the July 22, 1998, effective date of sec. 7491. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206,

d penalty associated with the erroneous deduction. OPINION Determinations of the Commissioner in a notice of deficiency are generally presumed correct, and the burden is on the taxpayer to show that the determinations are incorrect.13 Rule 142(a); 13Sec. 7491 does not apply in this case to shift the burden of proof or production to respondent because the examination of (continued...) - 18 - Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are a matter of legislative grace, and the taxpay

9-910 (1970). Generally, courts analyze whether the requisite intent existed to repay funds transferred by a taxpayer to another 5 Because the examination of petitioner’s individual Federal income tax return for 1995 commenced before July 23, 1998, sec. 7491 (relating to a possible shift of the burden of proof) is inapplicable. - 18 - individual or entity by examining objective evidence of the taxpayer’s intentions. See, e.g., In re Uneco, Inc., supra at 1207-1208. Subjective evidence of the tax

ayer maintained adequate records, satisfied applicable substantiation requirements, cooperated with respondent, and introduced during the court proceeding credible evidence on the factual issue.3 The legislative history of 3 The relevant language of sec. 7491 provides: (continued...) - 7 - section 7491(a) clarifies that taxpayers must prove that they have satisfied the adequate records, substantiation, and cooperation requirements before that section places the burden of proof upon the Commissio

7491 does not apply to this case because the examination of petitioners’ tax return commenced before July 22, 1998, the effective date of that section. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726.

7491, which is effective for court proceedings arising in connection with examinations commencing after July 22, 1998, provides rules that shift the burden of proof to the Commissioner in certain circumstances and place on the Commissioner the burden of production with respect to penalties and additions to tax. Sec. 7491 is inapplicable to thi

operation requirements before that section places the burden of proof upon the Commissioner.6 H. Conf. Rept. 105-599, at 239 (1998), 1998-3 C.B. 747, 993 (“The taxpayer has the burden of proving that it meets each of these 5 The relevant language of sec. 7491 provides: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Produces Credible Evidence.-- (1) General rule.--If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascer

operty insurance, property taxes, and utilities for the farmhouse), and depreciation of the farmhouse. Respondent asserts that the medical costs, food, and lodging expenses are the Schmidts’ personal, family, and living 6Under certain circumstances, sec. 7491 places the burden of proof or production on the Commissioner. Sec. 7491 applies to court proceedings arising in connection with tax examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, P

7491, which shifts the burden of proof to the Commissioner if the taxpayer meets certain conditions, is effective for court proceedings arising in connection with examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. Respondent began examining pe

ing property insurance, property taxes, remodeling, landscaping, maintenance and repair, telephone, and utilities for the farmhouse), and depreciation of the farmhouse. Respondent asserts that the medical costs, food, 10Under certain circumstances, sec. 7491 places the burden of proof or production on the Commissioner. Sec. 7491 applies to court proceedings arising in connection with tax examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pu

respondent’s mailing of an audit appointment letter to petitioners on or about July 16, 1998, to petitioners at Unionstone Lane, San Rafael, California, did not “commence an examination” of the petitioners’ 1996 tax return within the meaning of IRC Sec. 7491. (See Exhibit 10-R) 2. The respondent did not otherwise “commence an examination” of the petitioners’ 1996 tax return within the meaning of IRC Sec. 7491 before July 22, 1998. 3. The petitioners presented credible evidence of a net operatin

Discussion Petitioners bear the burden of proving that they are entitled to their claimed bad debt deduction. Rule 142(a);4 INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). To avail themselves of a bad debt deduction pursuant to section 166,5 4Sec. 7491 does not apply in the instant case to shift the burden of proof to respondent because petitioners neither alleged that sec. 7491 was applicable nor established that they fully complied with the requirements of sec. 7491(a)(2). 5Sec. 166. BA

OPINION Respondent claims that section 7491 does not apply in the instant case because the examination of petitioner’s case began prior to July 22, 1998.

7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, 112 Stat. 685. See RRA 1998 sec. 3001(c), 112 Stat 727. Respondent alleges that the examination in this case (continued

sed by the principal over the details of the work; (2) the worker’s investment in the facilities used in his or her work; (3) the worker’s opportunity for profit or loss; (4) the permanency of the relationship between the parties; (5) the 3 Because sec. 7491 applies only to taxes imposed by subtit. A or B, it is inapplicable in this case. - 7 - principal’s right of discharge; (6) whether the work performed is an integral part of the principal’s regular business; (7) the relationship the parties

7491 applies to court proceedings arising in connection with examinations beginning after July 22, 1998. Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. Thus, sec. 7491(a) does not apply, and petitioner bears the burden of proof on all issues in this case. Rule 142(a)(1). - 9 - return

ood, lodging (including property insurance, property taxes, and utilities for the farmhouse), and depreciation of the farmhouse. Respondent asserts that the medical costs, food, and lodging expenses are Mr. Tschetter’s 3Under certain circumstances, sec. 7491 places the burden of proof or production on the Commissioner. Sec. 7491 applies to court proceedings arising in connection with tax examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pu

As no single factor is controlling, the facts and circumstances of the case taken as whole are determinative. Abramson v. Commissioner, 86 T.C. 360, 371 (1986); sec. 1.183-2(b), Income Tax Regs. As a threshold matter, we must consider Dr. Burrus’s 9 Sec. 7491 is inapplicable in these proceedings; the parties conceded at trial that the examinations in this case commenced before July 22, 1998, the statute’s effective date. - 24 - previously quoted testimony to the effect that any profit he expecte

Section 7491 does not apply to shift the burden in this case because the examination of petitioner’s return commenced before July 22, 1998. Cases traditionally set forth a lengthy list of factors that are relevant in the determination of reasonableness, including: (1) The employee’s qualifications; (2) the nature, extent, and scope of the employee’

evidencing the various cash deposits and expenditures underlying his determination of the amounts of unreported income. These summaries generally were produced by respondent during the criminal investigation and prosecution of petitioner. Although 3 Sec. 7491, which shifts the burden of production and/or proof under certain circumstances, does not apply in the present case because the underlying examination commenced prior to July 22, 1998. Internal Revenue Service Restructuring & Reform Act of

.C. 56 (1958); Weinstein v. Commissioner, 29 T.C. 142 (1957). Finally, we turn to the portion of respondent’s motion that moves for a penalty pursuant to section 6673. Section 6673(a)(1) authorizes the Tax Court to require a taxpayer to pay to the 3 Sec. 7491 does not apply in this case to place the burden of proof on respondent because, among other reasons, the examination was commenced prior to July 22, 1998. Further, the burden of proof is irrelevant in this case because there are no material

7491, which shifts the burden of proof to respondent in certain circumstances, does not apply because the examination of the returns at issue commenced prior to the statute’s effective date. - 7 - activity is broadly defined as any activity involving the conduct of a trade or business in which the taxpayer does not “materially participate”. S

nal, family, and living expenses and that payments of these expenses by Waterfall Farms constitute constructive dividends to the Hubers. On the other hand, petitioners assert that all the expenditures are reasonable and 3Under certain circumstances, sec. 7491 places the burden of proof or production on the Commissioner. Sec. 7491 applies to court proceedings arising in connection with tax examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, P

Petitioner’s Residence in 1996 Petitioner argues that the burden of proof has shifted to respondent under section 7491 because petitioner produced credible evidence that he was a resident of California in 1996.

by Demetree and Associates should have been attributed to David because he, and not Arthur, controlled the business. Respondent asserts that: David performed the managing and leasing activities relating to Demetree and Associates; Arthur was never 3 Sec. 7491 is inapplicable because the examination of petitioners’ returns began before the statute’s effective date. - 9 - present in the office; David routinely signed Arthur’s name; and Arthur, who was in his seventies during the years in issue, wa

e of the cellular phone. OPINION At the outset, we note that it is petitioner who bears the burden of proving that respondent’s determination of income tax deficiencies is incorrect. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).3 3 Sec. 7491 does not apply in this case to shift the burden of proof to respondent because petitioner neither alleged that sec. 7491 was applicable nor established that she fully complied with the requirements of sec. 7491(a)(2). - 7 - A. Schedule C Ded

that the selling shareholder not surrender any of its target stock to the corporation because use of the redemption format will likely trigger sale treatment.”). Relevant Code provisions were from the Internal Revenue Code of 1954. Petitioner has not argued that the burden of proof should be placed on respondent, and we infer from the record that sec. 7491 does not apply because the examination in this case began before its effective date.

7491, which, under certain circumstances, shifts the burden of proof to the Commissioner, is inapplicable because the examination in this case began before July 22, 1998, the effective date of that section. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. Petitioner has failed to

ort services, although many of the 17 individuals identified in respondent’s notice of deficiency testified credibly that they paid her for such services. Also, petitioner first denied any detailed knowledge regarding an eviction proceeding for an 3 Sec. 7491 does not apply to this case because the examination commenced prior to July 22, 1998, the effective date of that section. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(1), 112 Stat. 726. -

controlling factor in determining whether a gain is income. Rutkin v. United States, supra; United States v. Rochelle, supra. Under the "claim of right" doctrine, it is well settled that unlawful, as well as lawful, gains are included within the 3¹ Sec. 7491 does not apply to this case because the examination commenced before July 22, 1998, the effective date of that section. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(1), 112 Stat. 727. - 49

on or frequent occurrence in the type of business involved. Deputy v. Du Pont, 308 U.S. 488, 495 (1940). To be “necessary” an expense must be “appropriate and helpful” to the taxpayer’s business. Welch v. Helvering, supra at 113. Additionally, the 2 Sec. 7491 does not apply in this case to place the burden of proof on respondent because petitioner neither alleged that sec. 7491 was applicable nor established that he fully complied with the substantiation requirements of sec. 7491(a)(2)(A). - 6 -

ec. 1.166-1(c), Income Tax Regs. Moreover, Ms. Weinstein’s business and Attieh Bros. were going concerns at the time the loans were made. See Lerma v. Commissioner, supra. Finally, the communications between both Ms. Weinstein and the Attiehs and 18 Sec. 7491 does not apply to this case because the examination commenced prior to July 22, 1998, the effective date of that section. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(1), 112 Stat. 726. -

Under section 7491, the burden of proof is placed on the Secretary under certain circumstances. Section 7491 applies to court proceedings arising in connection with examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of.1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. Respondent sent a letter to petitioner

we conclude and hold that respondent has met his burden of proof as to those items.5 4 In certain circumstances, if a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's liability for tax, sec. 7491 places the burden of proof on the Commissioner. See sec. 7491(a)(1); Rule 142(a)(2). Sec. 7491 is effective with respect to court proceedings arising from examinations commenced after July 22, 1998. See Internal Revenue Service Restructurin

Adiustments to Income The determinations of the Commissioner in a notice of deficiency are presumed correct, and the burden is on the taxpayer to show that the determinations are incorrect. Rule 142(a); Welch v. Helverino, 290 U.S. 111, 115 (1933).5 Sec. 7491 does not apply in this case to place the burden of proof on respondent because, among other reasons, the (continued...) - 16 - The computation of income of a Schedule C business takes into account returns and allowances, cost of goods sold,

tled to receive all the farm income as his distributive share of BBP income." In its reply brief, the estate for the first time joins respondent's alternative argument that the grain was the sole property of "On brief, Russell and Clarice argue that sec. 7491 applies and that respondent has the burden of proof with respect to the issues for decision. In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax li

7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend that respondent bears the burden of proving that sec. 104(a)(2) does not apply, and they introduced no evidence establishing that the examination in this case commenced after July 22, 1998. Accordingly, petitione

ed to receive all the farm income as his distributive share of BBP income.15 In its reply brief, the estate for the first time joins respondent’s alternative argument that the grain was the sole property of 14On brief, Russell and Clarice argue that sec. 7491 applies and that respondent has the burden of proof with respect to the issues for decision. In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax li

Cost of goods sold is not treated as a deduction from gross income and is not subject to the limitations on deductions contained in sections 162 and 274. Metra Chem Corp. v. Commissioner, 88 T.C. 654, 661 (1987). All amounts claimed as 3 Pursuant to sec. 7491, the burden of proof or of production may be placed on the Commissioner in certain circumstances for audits conducted after July 22, 1998. Sec. 7491 is inapplicable in this case because petitioners’ examination commenced before July 22, 199

Petitioners, however, argue that here the burden shifted to respondent under section 7491 because - 5 - petitioners introduced credible evidence that the cash transaction was a loan.

lue was $1,757,911. However, respondent’s proposed ultimate finding of fact is that the value of decedent’s interest in WSA was $1,746,000, the value that respondent determined. Respondent does not explain this difference. 2 The estate concedes that sec. 7491 does not apply because the examination began before July 22, 1998. - 8 - be selective in deciding what parts of an expert's opinion, if any, we accept. Helvering v. Natl. Grocery Co., 304 U.S. 282, 295 (1938). Herbert T. Spiro (Spiro) testi

7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend that respondent bears the burden of proving that sec. 104(a)(2) does not apply, and they introduced no evidence establishing that the examination in this case commenced after July 22, 1998. Accordingly, petitione

Section 7491 applies to examinations commencing after July 22, 1998. Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 726. Upon reviewing the record, it is unclear when the examination of petitioner’s 1997 return commenced. Further, neither party raised the issue of whether section 7491(a) applies here. However

ly fix the loss. If the assets of the corporation exceed its liabilities, the stock has a liquidating value. If its assets are less ¹ The Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec. 7491, which in certain circumstances places the burden of proof on respondent. Sec. 7491 is applicable, however, to court proceedings arising in connection with examinations commencing after July 22, 1998. Accordingly, sec. 7491 is inapplicable

7491 provides in pertinent part: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Produces Credible Evidence.-- (1) General rule.--If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the

wances paid either by the Government or by private persons constitute gross income unless excluded by law.”). 8 As a preliminary matter, we note that we decide the issues in this case without regard to the burden of proof. In any event, we note that sec. 7491 does not apply to this case because the examination of petitioner’s 1996 taxable year commenced no later than January 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, secs. 3001(a), (c)(1), 112 Stat.

the condominium that she owned and had previously rented out. Petitioner asserts that she was living in temporary housing and lacked 6 Sec. 7491(a) does not apply to place the burden of proof on respondent because petitioner has neither alleged that sec. 7491 is applicable nor established that she complied with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with respondent’s reasonable requests. - 13 - access to her belongings

7491 provides in pertinent part: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Produces Credible Evidence.-- (1) General Rule.--If, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the

Burden of Proof Petitioner contends that respondent bears the burden of proof under section 7491, and that respondent's determination is arbitrary or invalid, and thus is not presumed to be correct.

7491 applies only to court proceedings arising from (continued...) U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). The fact that the parties submitted this case to the Court fully stipulated does not change or otherwise lessen petitioners' burden in this case. Rule 122(b); Kitch v. Commissioner, 104 T.C. 1, 8

7491 is effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Respondent contends that sec. 7491 is inapplicable because the examinations commenced before July 22, 1998. Petitioners do not contend that their examinations began after this date or that sec. 7491 is applicable to their case. - 14

mination is presumed to be correct, and petitioner bears the burden of proving otherwise.5 Rule 142(a). A. Manila Accounts Petitioner claims that Mr. Haynes was his client and that he (petitioner) set up the Manila Accounts as an accommodation to 5 Sec. 7491 is inapplicable, as the audit in this case started in 1994. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). - 8 - Mr. Haynes as part of an alleged treasure hunting operation-- searching for gold allegedly hidden by the Japanese in the Phil

r profit. Such factors include: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended 1 Because the examination in this case commenced before July 23, 1998, sec. 7491, which places the burden of proof with respect to any fact issue on respondent where the taxpayer maintains adequate records, satisfied applicable substantiation requirements, cooperated with respondent, and produced credible evidence with r

7491 is effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Respondent contends that sec. 7491 is inapplicable because the examinations commenced before July 22, 1998. Petitioners do not contend that their examinations began after this date or that sec. 7491 is applicable to their case. - 14

Section 7491, which is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of its enactment by section 3001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726, does not apply to place the burden of proof

- 16 - Having described the framework of section 7491(c), we evaluate whether respondent has met his burden of production with regard to the section 6651(a)(1) addition to tax and the section 6662 accuracy-related penalty. We also discuss whether petitioners have presented any evidence which would cause us not to sustain respondent’s determinations with regard to the addition to tax and the accuracy-related penalty. Section 6651(a)(1) imposes an addition to tax for a taxpayer’s failure to file a

ective for examinations commenced on or after July 22, 1998. See Higbee v. Commissioner, 116 T.C. ___, ___ (2001) (slip op. at 5); RRA 1998 sec. 3001(c), 112 Stat. 685, 727. The examination in this case commenced prior to July 22, 1998. Accordingly, sec. 7491 is inapplicable. 8 Although Weimerskirch v. Commissioner, 596 F.2d 358 (9th (continued...) - 9 - Commissioner must establish "some evidentiary foundation" linking the taxpayer to the income-producing activity, Weimerskirch v. Commissioner,

incurred a deductible expense but does not establish the amount of the deduction, we may estimate the amount allowable in certain circumstances. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d 3 The examination in this case began in 1996; therefore, sec. 7491 is inapplicable. Higbee v. Commissioner, 116 T.C. 438, 440 (2001) (sec. 7491 applies to examinations commenced after July 22, 1998). - 8 - Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). There must be sufficient evidence i

Burden of Proof Petitioners contend that petitioner’s testimony was uncontroverted and credible and that, pursuant to section 7491, the burden of proof has shifted to respondent.

no credible evidence of any nontaxable sources for the unexplained funds deposited into their banking accounts or the 2 The Internal Revenue Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 726, added sec. 7491, which shifts the burden of proof to the Commissioner in certain circumstances. Sec. 7491 is applicable to court proceedings arising in connection with examinations commencing after July 22, 1998. See RRA 1998 sec. 3001(c). Because responde

s liable for only one- third of the income of Stan’s Pawn Shop. Petitioner reported income and expenses for Stan’s Pawn Shop as a sole proprietorship on Schedule C of his 1993 return. Stan’s Pawn Shop did not file a partnership return or Schedules 7 Sec. 7491, relating to the burden of proof, applies to court proceedings arising in connection with examinations beginning after July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), (c), 112 S

l be upon the petitioner, * * * except that, in respect of any new matter, * * * it shall be upon the respondent.” 3 The Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491 is applicable to “court proceedings arising in connection with examinations commencing after the date of the enactment of this Act.” RRA 1998, sec. 3001(c

7491 does not apply because respondent’s examination was commenced before July 23, 1998. 2 Petitioner presented no evidence to rebut respondent’s determinations that petitioner failed to report unemployment compensation and interest income in 1993. Respondent’s determinations are sustained. - 3 - FINDINGS OF FACT Some of the facts have been s

Furthermore, although recently enacted section 7491 may operate in certain scenarios to place the burden on the Commissioner, the statute is effective only for - 11 - court proceedings that arise in connection with examinations commencing after July 22, 1998.

with Mr. Akers’s examination of the trust 1995 return was by letter dated July 1, 1998, to make an appointment to meet and discuss that examination. OPINION I. Burden of Proof Petitioners claim that respondent bears the burden of proof pursuant to section 7491. Respondent answers that section 7491 is inapplicable to this case. We agree with respondent. In pertinent part, Rule 142(a) provides: “The burden of proof shall be upon the petitioner, except as otherwise provided by statute”. In certain

382, 386 (5th Cir. 1995), affg. in part, revg. in part on other grounds, and remanding in part T.C. Memo. 1992-168. 2 Internal Revenue Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 726- 727, added sec. 7491, which places the burden of proof on the Commissioner in certain circumstances. Sec. 7491 is applicable to court proceedings arising in connection with examinations commencing after July 22, 1998. See RRA 1998 sec. 3001(c), 112 Stat. 727; Hi

Burden of Proof Petitioners contend that petitioner’s testimony was uncontroverted and credible and that, pursuant to section 7491, the burden of proof has shifted to respondent.

vice (IRS) to give taxpayers advance notice of certain third-party contacts; (2) whether respondent’s agents violated section 7602(e), limiting respondent’s use of financial status or economic reality examination techniques; (3) whether, pursuant to section 7491, respondent bears the burden of proof; (4) whether petitioners are entitled to deduct various business expenses of their salvage business in amounts greater than respondent has allowed; and (5) whether petitioners are entitled to reduce

Further, for similar reasons regarding our discussion of petitioners’ evidence for purposes of section 7491, we conclude that petitioners have not met their burden of proof.

his case should be shifted to respondent because petitioners presented credible evidence with respect to factual issues. Although - 6 - petitioners cite no authority with regard to this argument, we assume they are referring to the recently enacted section 7491. However, section 7491 only applies to court proceedings arising in connection with examinations commencing after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 7

gral plan and the determination of whether the principal purpose of the transactions was tax avoidance were inseparable). 32 Internal Revenue Service Restructuring & Reform Act of 1998 (RRA), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 726-727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491 is applicable to "court proceedings arising in connection with examinations commencing after the date of the enactment of this Act." RRA sec. 3001(c). RR

ns beyond those reflected in the stipulation of facts. Those amounts are less than the allowable standard deduction for the year at issue. Respondent's determination that 1 The examination of petitioner's return began before July 23, 1998. Therefore sec. 7491, which was added to the Code by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 685, 726, and which shifts the burden of proof to respondent in certain circumstances, does not appl

Section 1366(a) generally allows shareholders of S corporations to take into account their pro rata share of the 15 Internal Revenue Service Restructuring & Reform Act of 1998 (RRA of 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 726- 727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491 is applicable to "court proceedings arising in connection with examinations commencing after the date of the enactment of this Act." RRA of 1998, sec. 30

claim. Instead, petitioners' filings contain a hodgepodge of rhetoric, unsupported assertions, and legalistic 2The Internal Revenue Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001(a), 112 Stat. 685, 726-727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491 is applicable, however, to "court proceedings arising in connection with examinations commencing after the date of the enactment of this Act." RRA 1998 se

At trial and in their opening posttrial brief, petitioners contend that they met the requirements of section 7491 and that the burden, therefore, should shift to respondent.

The Burden of Proof Issue If a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability and the taxpayer complies with all substantiation requirements, maintains all required records, and cooperates with the Commissioner's reasonable requests for witnesses, section 7491 places the burden of proof on the Commissioner with respect to that issue .

The Burden of Proof Issue If a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability and the taxpayer complies with all substantiation requirements, maintains all required records, and cooperates with the Commissioner's reasonable requests for witnesses, section 7491 places the burden of proof on the Commissioner with respect to that issue .

nd that she properly applied lack of control and lack of marketability discounts in valuing the transferred LLC interests. Petitioner also contends that respondent bears the burden of proof on all fact issues because she has met the requirements of section 7491. As the only issue decided in this Opinion is decided as a matter of law, we need not decide in this Opinion which party bears the burden of proof. II. The Historical Gift Tax Valuation Regime We begin with a brief summary of the longstan

ion (or lack thereof) of section 7491(c), we need not and do not decide - 10 - "whether the determination of additions to tax as affected items resulting from a partnership examination is a separate examination for purposes of the effective date of section 7491" . Bass v . Commissioner, supra . As we will explain, even assuming that respondent has the burden of production, respondent has met that burden under the facts and circumstances of this case . II . Additions to Tax Under Section 6653(a)(

We offer no opinion, however, about whether the determination of additions to tax as affected items resulting from a partnership examination is a separate examination for purposes of the effective date of section 7491, and we need not decide whether the circumstances of - 13 - this case would lead to the conclusion that examination of petitioners ' Schedule C was a separate examination .

Petitioners contend that section 7491, which was added to the Code by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.

Bolt & Nut Co. v. Commissioner, 93 T.C. 500, 507 (1989); Estate of Ballantyne v. Commissioner, T.C. Memo. 2002-160. In this regard, we stated that a new matter is raised when the basis or theory upon which the Commissioner relies is not stated or 4 Sec. 7491 applies to court proceedings arising in connection with examinations beginning after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. In this case, the examination o

In certain circumstances, section 7491 places the burden of proof on respondent with regard to certain factual issues.

Indeed, in response to petitioners’ argument that the burden of proof on this issue is upon respondent pursuant to section 7491, respondent states that “This case involves purely a legal question, namely whether the California Judges’ Retirement Law is in the nature of a worker’s compensation act.”15 14(...continued) 274, 281 n.15 (1985); Thurman v.

rial, petitioner limited his arguments with respect to allowable deductions for 1997 to whether FRGC sustained an abandonment loss. Petitioner also argues that the burden of proof should be shifted to respondent in accordance with the provisions of section 7491. We need not decide whether the conditions of section 7491 have been met by petitioner in this case, however, as the resolution of these issues does not depend on which party has the burden of proof. We resolve these issues on the basis o

affd. 875 F.2d 420 (4th Cir. 1989). Even if we had not done so, we disagree with petitioner’s contention that the circumstances in this case are similar to those in Selfe. 2 Petitioners do not contend that respondent bears the burden of proof under sec. 7491. Taxpayers bear the burden of proving that the requirements under sec. 7491(a) are met. H. Conf. Rept. 105-599, at 239 (1998), 1998-3 C.B. 747, 993; S. Rept. 105-174, at 45 (1998), 1998-3 C.B. 537, 581. - 6 - The taxpayer in Selfe borrowed

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified conditions. Thermal does not contend, and the evidence does not establish, that the burden of proof has shifted to the Commissioner under section 7491(a) as to any issue. II. Whether Thermal Had Taxable Income It is un

Section 7491 provides that the burden of proof on a factual issue may shift to the Commissioner if the taxpayer satisfies specified condi- tions. Among these conditions are that the taxpayer must have “intro- duce[d] credible evidence with respect to [that] factual issue,” § 7491(a)(1), and must have “complied with the requirements under this title

Petitioners have neither claimed nor introduced credible evidence sufficient to show that the burden of proof should shift to respondent under section 7491 as to any relevant factual issue.

e first day ofthe trial but not for the second day. 2Respondent granted Ms. Platts relieffromjoint and several liability under sec. 6015(b). -10- [*10] OPINION 1. Burden ofProof Petitioner contends that the burden ofproofshifts to respondent under section 7491. Ifa taxpayer complies with all substantiation and recordkeeping requirements under the Internal Revenue Code and introduces credible evidence with respect to any factual issues relevant to ascertaining the taxpayer's liability, the Commis

Petitioners contend that respondent bears the burden ofproofbecause they have satisfied the requirements ofsection 7491 for shifting that burden.

Petitioners contend that respondent bears the burden ofproofbecause they have satisfied the requirements ofsection 7491 for shifting that burden.

fore we conclude that the Coateses have the burden ofproving their adjusted basis in property B." Adjusted basis in property is equal to the basis ofthe property, plus or minus the adjustments required by section 1016. See sec. 1011(a). One type of "Sec. 7491 imposes the burden ofproofon the IRS for a fact ifcertain requirements are met. M sec. 7491(a)(1) (requiring taxpayerto introduce credible evidence), (2)(A) (requiring taxpayerto substantiate), (B) (requiring taxpayerto maintain records). T

Under section 7491, the burden ofproofshifts from the taxpayerto the Commissioner only ifthe taxpayerproduces credible evidence with respect to any - 13 - [*13] factual issue relevant to ascertaining the taxpayer's tax liability. Sec. 7491(a)(1); Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). However, section 7491(a)(1) applies with respect to an

to shift the burden as to nonfraud issues. Under sec. 7491(a)(2) a taxpayermust comply with the requirements to substantiate any item. As discussed below, petitioners did not substantiate the interest deduction. Thus the burden does not shift under sec. 7491 with respect to the interest deduction. - 19 - [*19] that enable the Commissionerto determine the taxpayer's correcttax liability. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976)

to shift the burden as to nonfraud issues. Under sec. 7491(a)(2) a taxpayermust comply with the requirements to substantiate any item. As discussed below, petitioners did not substantiate the interest deduction. Thus the burden does not shift under sec. 7491 with respect to the interest deduction. - 19 - [*19] that enable the Commissionerto determine the taxpayer's correcttax liability. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976)

sue." Sec. 7491(a)(1); see also Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). Petitioners argue that the burden shifts to respondentunder section 7491(a). Respondent disagrees and argues that petitioners have not satisfied the requirements ofsection 7491. The party whose position is supported by the weight ofthe evidence will prevail regardless ofwhich party bore the burden ofpersuasion. See Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005), a_ff'g T.C. Memo. 2003-212. Conseq

sue." Sec. 7491(a)(1); see also Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). Petitioners argue that the burden shifts to respondentunder section 7491(a). Respondent disagrees and argues that petitioners have not satisfied the requirements ofsection 7491. The party whose position is supported by the weight ofthe evidence will prevail regardless ofwhich party bore the burden ofpersuasion. See Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005), a_ff'g T.C. Memo. 2003-212. Conseq

present evidence which, after critical analysis, the Court would find sufficient to base a decision on the issue on because the evidence was inconsistent. See id. Inconsistent evidence is not credible and is not persuasive to shift the burden under section 7491. See Gutierrez v. Commissioner, T.C. Memo. 48The parties briefed a number ofevidentiary objections thatthe Courthad reserved ruling on at trial. Those objections not dealt with in this opinion have been dealt with by order dated August 4

The Cotirt therefore determined that petitioner did not satisfy the requirements ofsection 7491 and, on June 13, 2012, entered a written order denying petitioner's oral motion to shift theburden ofproof.

requirements ofsection 170(f)(11), section 1.170A-13(c)(3), Income Tax Regs. or DEFRA sec. 155. While reasonable cause may excuse their noncompliance for purposes ofa deduction under section 170(f)(11)(A)(ii)(II), no parallel exception exists under section 7491. Accord H.R. Conf. Rept. No. 105-599, at 241 (1988), 1998-3 C.B. 747, 995 ("Taxpa ers who fail to substantiate any item in accordance with the legal requirement ofsubstantiation will not have satisfied the legal conditions that are prere

Under section 7491, the Commissioner bears the burden ofproduction with respect to the section 6662 penalty. This means that the Commissioner must come forward with sufficient evidence indicating that it's appropriate to impose the -75- [*75] relevant penalty. Higbee, 116 T.C. at 446. The Commissioner certainly showed here that the Heinbockels kept inad

on on the issue in favor ofthe taxpayer ifno contrary evidence were submitted. Ruckriegel v. Commissioner, - 8 - [*8] T.C. Memo. 2006-78. We have previously found unsupported assertions or testimony insufficientto constitute credible evidence under section 7491. See Bauer v. Commissioner, T.C. Memo. 2012-156; Doudney v. Commissioner, T.C. Memo. 2005-267; Kolbeck v. Commissioner, T.C. Memo. 2005-253; Davis v. Commissioner, T.C. Memo. 2005-160; Evan v. Commissioner, T.C. Memo. 2004- 180; see also

7491; see Higbed v. Commissioner, 116 T.C. 438, 441 (2001). Petitioner concedes th t no s ch.circumstances exist here and that she bears the burden ofproving that resp ndent's determinations in the deficiency notice are erroneous. We now consider whether peti ioner can exclude the $70,000 in settlement proceeds from her gross income for 2 10.

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v. Helvering, 290 U.S. 111, 115 (1933). Because they provided insufficient documentation to respondent during the audit, petitioners do not qualify for a shift in the burden ofproofunder section 7491. COGS--Disallowed $48,074 ($32,308 Contract Labor and $15,766 Fuel) In their posttrial brief, for lack ofsubstantiation petitioners state that they concede respondent's $48,074 reduction to H&H's COGS. H&H is allowed a total COGS deducti

mmissioner, T.C. Memo. 2010-272; Colvin v. Commissioner, T. C. Memo. 2004-67, aff'd, 122 Fed. Appx. 788 (5th Cir. 2005). The notice of deficiency is valid. Before the first trial date, petitioner filed a motion to shift the burden of proof, citing section 7491. That motion was denied. In his posttrial brief, petitioner implicitly contends that respondent must prove that his claimed deductions are not permissible. Section 7491(a) shifts to the Commissionerthe burden ofproofwith respect to a factu

On the basis ofthe record, the Court concludes that petitioner has not met the requirements ofsection 7491 and, as a result, the burden.ofproofremains with him.

Section 7491 imposes the burden ofproofon the IRS with respect to any factual issue relevant to determining the taxpayer's tax liability, provided the taxpayer has (1) complied with all substantiation requirements, (2) maintained all required records, (3) cooperated with all reasonable requests for information from the IRS, and (4) introduced credi

Section 7491 does not require the burden ofproofto be placed on respondent. Petitioners have neither asserted that the burden ofproofshould be placed on respondent nor established that they complied with the requirements of section 7491(a). Accordingly, petitioners bear the burden ofproof. See ' 7491(a)(2)(A) and (B). II. Gambling Losses Gross inco

Petitioner referenced the bankruptcy in support of its claim that, pursuant to section 7491, the partnership lacked sufficient net worth such that petitioner was not excluded from shifting the burden of proof to respondent.

Petitioner neither proposes facts to support her compliance with the conditions of section 7491(a) (2) (A) and (:B) nor argues that respondent bears the burden of proof on any issue because of section 7491 (a) (1) .

Although section 7491-(a) may serve to - shift the burden of proof to the Commissioner under certain 2 We note that petitioner claimed a "total income" of $32,318 on his Form 1040 at line 22 and combined business expenses of $35,435 on his Schedules C and E.

proving otherwise. Rule 142(a) (1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioners moved for a section 7491(a) (1) burden shift in their pretrial memorandum. Petitioners failed to meet the substantiation and recordkeeping requirements of section 7491. See sec. 7491(a) (2) (A) and (]B). Therefore, the burden remains on petitioners. Tax deductions are a matter of legislative grace, and the taxpayer bears the burden of proving entitlement to the deductions claimed. Rule 142(a) (1); INDO

But section 7491 (a) (1) imposes the burden of proof on the IRS if the taxpayer introduces credible evidence and satisfies the conditions of section 7491(a) (2) . The taxpayer bears the burden of proving that the conditions in section 7491(a) (2) have been satisfied. See Rolfs v. Commissioner, 135 T.C. 471, 483 (2010). Penland failed to do so for any f

to section 7491 (a) ,' ,;the ;burden. of .proof as to- factual matters shifts-to the Commissioner under-certai n circumstances . Mrs . Ajah neither :alleged that .section 7491(a) . applies nor`established,her compliance, with . the. substantiation and recordkeepingrequirements . See sec . 7491(a)(2)(A) .and (B) . Mrs . Ajah, .therefore, bears the burd

yInitially, we-address'petitioners'"contention-that th e burden of proof should-.be shifted to`respondent_under section 7491:`- .Respondent contends that petitioners did-,not-comply with the prerequisites of section 7491 and that the burden did not shift .

As previously stated, section 7491 (c) provides that the Commissioner bears the burden of production with respect to the liability of any individual for penalties .

section 7491 (a) (2) (A) and a(B) nor persuasively- argue that responden t bears the burden of proof on any issue,because of section-,, 7491(a)(1) . We therefore conclude that section 7491(a)(1) doe s not apply . III . De Novo Review of Underlying Tax Liability Under section 6320 ( a) the Secretary is required to notify the taxpayer in writing of t

Additions to tax Under section 7491 (c), "the Secretary shall have the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or additional amount imposed by this title ." With the minor exception noted below, the Commissioner has met that burden of production , and we sustain most of the additions t

r has the burden of proving that those determinations are erroneous . See Rule 142(a ) ; Welch v . Helvering , 290 U .S . 111, 115 (1933) . In some cases the burden of proof with respect to relevant factual issues may shift to the Commissioner under section 7491 ( a) . Petitioner did not argue. or present evidence that he satisfied the requirements of section 7491(a) . Therefore , the burden of proof does not shift to respondent . Petitioner ' s evidence at trial was his testimony that the "loss

Section 6662 Accuracy-Related Penalty : Under section 7491.(c), ;respondent bears the burden of production with respect to petitioner's -liability for the section 6662(a) penalty.

We first consider whether petitioners-, have introduced credible evidence with respect to a disputed fact relevant t their liability for tax . We conclude that both the Forms 104.07 and petitioners' . testimony are nothing more than..a continuation petitioners' frivolous legal arguments and conclusions . Neither the Forms 1040 n

sses . . . . . . . . 1. . . . . . . . . . . . . . . . . . 241 II . Burden of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 A. Overview . . . . .. . . . . . . . . . : . . . . . . . . . . . . . .244 B . Applicability of Section 7491 . . . . . . . . . . . . . . . . . . 245 C . Claim That NODs Are Arbitrary . . . . . . . . . . . 24 9 III . NOL Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .251 IV . Bad Debt Deduction . . . . . . . . . . .

In certain circumstances, however; if the taxpayer introduces credible evidence with-respect .-to any factual issue relevant to ascertaining the proper tax liability,° section 7491 places the burden of proof on the Commissioner .

Petitioner does not contend that the burden of proof, which is normally placed on the taxpayer pursuant to Rule 142 , should be shifted to respondent under section 7491 ( a), and she did not introduce evidence to establish that the requirements of section 7491 (a) have been satisfied .

Petitioners bear the burden of proof because they have neither alleged that section 7491(a) applies nor proven that they have complied with the substantiation and recordkeeping requirements of section 7491 (a) (2) (A) and (B ) II .

In order for the burden of~proof to .shift to the Commis- sioner of Internal Revenue under section 7491,(a),-the taxpayer must (l) .provide credible evidence with respect to any factual issue relevant to determining the-tax.

Under section 7491'(c), the Commissioner has the burden of production with respect to any penalty . Once the Commissioner meets the.burden of production, the taxpayer continues to have the burden of proof with respect to whether the Commissioner's determination of the penalty is correct . Rule 142(a) ; Higbee v . Commissioner , 116 T .C . 43.8 (2001) . `

Under section 7491, the burden of proof may shift from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability . Sec . 7491(a)(1) . In these cases there is no such shift because petitioners neither alleged that section 7491 was applicable nor estab

6662(a) 1993 $17,068 -- $3,413.60 1994 95,913 -- 19,182.60 1995 191,486 -0- 38,297.20 - 3 - After concessions, the issues for decision are: (1) Whether the burden of proof has shifted to respondent under section 7491; (2) whether FSH Services is disregarded for Federal tax purposes and its income for the years in issue is attributed to the Swansons; (3) whether the periods of limitations on assessment expired before the deficiency notices were sent; (4) whether the Swansons are liable for self-e

Under section 7491, the burden of proof may shift from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability . Sec . 7491(a)(1) . In these cases there is no such shift because petitioners neither alleged that section 7491 was applicable nor estab

Although neither party has directly raised section 7491 (a) as an issue , on our review of the entire record, and for the reasons discussed infra, we conclude that petitioners have neither complied with all substantiatio requirements of the Code nor maintained all required records .

- 11 - 2003, and respondent has met his burden of production under section 7491 (c ) An accuracy-related penalty is not imposed on any portion of the understatement as to which the taxpayer acted with reasonable cause and in good faith .

titioner's testimony to be evasive, vague, conclusory, and/or questionable . Petitioner introduced no - 6 - credible evidence regarding his income for 2002, 2003 , or 2004, and he introduced no evidence to establish that he met the prerequisites of section 7491 (a) . Accordingly, petitioner bears the burden of proof . II . Section 61 Section 61 ( a) defines gross income as all income from whatever source derived . A. Income From Akron Public Schools Gross income includes compensation for service

On the record before us, we find that respondent has satisfied respondent ' s burden of production under section 7491 ( c) with respect to the accuracy- related penalty under section 6662(a) .

The Court cannot conclude that petitioner had a required annual payment for 2004 because respondent failed to produce sufficient evidence , as required by section 7491 ( c), to allow the Court to complete the comparison required by section 6654 (d)(1)(B) .

Respondent's Burden of Production Under Section 7491(c ) If a taxpayer assigns error to the Commissioner's determination that the taxpayer is liable for an addition to tax or penalty, the Commissioner has the burden, under section 7491(c), of producing evidence that the addition to tax or penalty applies .

Burden of Production : Section 7491(c ) Section 7491(c) provides that the Commissioner will bear the burden of production with respect to the liability of any individual for additions to tax and penalties .

2(h) (because their. underpayments do not exceed $5,000 under the Rule 155 calculation), petitioners are liable for the 20-percent penalty under section 6662(b)(1) . These cases are decided on the preponderance of the evidence and are unaffected by section 7491 . See Estate of Bongard v . Commissioner, 124 T .C . 95, 111 (2005) . To reflect the foregoing,, Decisions will be entered under Rule 155 .

2(h) (because their. underpayments do not exceed $5,000 under the Rule 155 calculation), petitioners are liable for the 20-percent penalty under section 6662(b)(1) . These cases are decided on the preponderance of the evidence and are unaffected by section 7491 . See Estate of Bongard v . Commissioner, 124 T .C . 95, 111 (2005) . To reflect the foregoing,, Decisions will be entered under Rule 155 .

Petitioners raised the issue of whether section 7491(a ) applies for the first time in their posttrial brief .

6662(h) (because their underpayments do not exceed $5,000 under the Rule 155 calculation), petitioners are liable for the 20-percent penalty under section 6662(b)(1). These cases are decided on the preponderance of the evidence and are unaffected by section 7491. See Estate of Bongard v. Commissioner, 124 T.C. 95, 111 (2005). To reflect the foregoing, Decisions will be entered under Rule 155. Fenton did not affiliate with UA until 1997. The record does not indicate why certain medical groups joi

Under certain circumstances, however, section 7491 ( a) may shift the burden to the Commissioner with respect to a factual issue affecting liability for tax .

or of petitioner . We hold that petitioner's horse activity during the years in issue was an activity not carried on for profit within the meaning of section 183 (c) . ' This case is decided on the preponderance of the evidence, and is unaffected by section 7491 . See Estate of Bongard v . Commissioner , 124 T .C . 95, 111 (2005) . To reflect the foregoing, Decision will be entered for respondent . ' This opinion only applies to the years in issue, and petitioner is not precluded from establishi

Under that section the burden of proof may shift to the - 28 - Commissioner with respect to a factual issue affecting the taxpayer's liability for tax where the taxpayer introduces credible evidence with respect to such a factual issue and meets certain substantiation requirements set forth in section 7491 (a) (2) (A) and (B) .

7491 (a) (2) (B) . Section 7491(a)(1) does not shift the burden of proof to respondent with respect to petitioner's liability for a deficiency in tax because petitioner has not produced credible evidence with respect to that issue, nor has petitioner maintained records or cooperated with respondent's reasonable requests . Therefore, petitioner

Burden of Proof Under section 7491, the burden of proof shifts from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability .

With respect to the remaining issues, petitioner has not argued that section 7491 applies, nor has petitioner established that the requirements of section 7491(a) have been met.39 Consequently, we conclude that section 7491(a) does not shift the burden of proof to respondent on the remaining issues.

Under that section the burden of proof may shift to the - 28 - Commissioner with respect to a factual issue affecting the taxpayer's liability for tax where the taxpayer introduces credible evidence with respect to such a factual issue and meets certain substantiation requirements set forth in section 7491 (a) (2) (A) and (B) .

Here, petitioner has made no argument directed toward section 7491 and consequently has not shown that all necessary prerequisites for a shift of burden have been met.

were transferred in a bona fide sale for adequate and full consideration . We shall consider the parties' arguments after first addressing the burden of proof . I . Burden of Proof The estate orally moved at trial to shift the burden of proof under section 7491 . We took the oral motion under advisement and now conclude, after carefully reviewing the record, that we must deny the estate's motion to shift the burden of proof . 3( . . .continued) transferred to the trusts for Mrs . Erickson's gra

Section 7491 ( a), however , shifts the burden of proof to the Commissioner with respect to a factual issue affecting the tax liability of a taxpayer who meets certain conditions . Petitioners have neither claimed nor shown that they satisfied the requirements of section 7491(a) to shift the burden of proof to respondent with regard to any factual

With respect to the remaining issues, petitioner has not argued that section 7491 applies, nor has petitioner established that the requirements of section 7491(a) have been met.39 Consequently, we conclude that section 7491(a) does not shift the burden of proof to respondent on the remaining issues.

Under that section the burden of proof may shift to the - 28 - Commissioner with respect to a factual issue affecting the taxpayer's liability for tax where the taxpayer introduces credible evidence with respect to such a factual issue and meets certain substantiation requirements set forth in section 7491 (a) (2) (A) and (B) .

Under that section the burden of proof may shift to the - 28 - Commissioner with respect to a factual issue affecting the taxpayer's liability for tax where the taxpayer introduces credible evidence with respect to such a factual issue and meets certain substantiation requirements set forth in section 7491 (a) (2) (A) and (B) .

Under that section the burden of proof may shift to the - 28 - Commissioner with respect to a factual issue affecting the taxpayer's liability for tax where the taxpayer introduces credible evidence with respect to such a factual issue and meets certain substantiation requirements set forth in section 7491 (a) (2) (A) and (B) .

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

ir claimed expenses; therefore, the burden of proof does not shift to respondent. However, as to the penalties, the burden of production is on respondent. Sec. 7491(c). The Court’s holding in this case is based upon due regard to the requirements of sec. 7491. - 3 - Houston, Texas. Petitioner has a bachelor of science degree in petroleum engineering and has been an employee of Conoco for over 27 years. Maria C. Gonzalez, petitioner’s spouse, was also employed during the years at issue, earning w

here in the Agreement, nor is there any basis for inferring that such exists . We therefore reject petitioner's arguments on this point . - 11 - The parties dispute whether the burden of proof in this case has been shifted to respondent pursuant to section 7491 . Section 7491(a) imposes the burden of proof on respondent if the taxpayer introduces credible evidence with respect to any factual issue and complies with the requirements of section 7491(a)(2)(A) and (B) to substantiate all items at is

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

Under section 7491, the burden of proof shifts from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer’s liability. Sec. 7491(a)(1). However, where the Commissioner raises a new matter or claims an increase in the deficiency, the burden of proof is on the Com

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

Under section 7491, the burden of proof shifts from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to - 7 - ascertaining the taxpayer’s liability. Sec. 7491(a)(1). However, where the Commissioner raises a new matter or claims an increase in the deficiency, the burden of proof is on

Speltz worked a sufficient number of hours and the nature of the activities he performed.7 Accordingly, we find that section 7491 shifts the burden of proof to respondent.

However, section 7491 may shift the burden to respondent in specified circumstances, for example, where the taxpayer produces "credible evidence" and meets other requirements.

Section 7491 applies to this case because the examination of petitioner’s income tax returns for the years at issue began after the statute’s effective date, but petitioner failed to substantiate the claimed expenses and failed to maintain adequate records.5 Accordingly, petitioner does not meet the requirements 4Petitioner also asserts for the fir

Section 7491 In general, the taxpayer bears the burden of proving that the Commissioner’s determinations in the deficiency notice are in error. See Rule 142(a)(1). Section 7491(a)(1) provides, however, that “[i]f * * * a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining * * * [the taxpayer’s proper tax

Petitioners further argue that respondent conceded at trial that he bears the burden of proof on all issues except the LIFO/FIFO basis issue, and that respondent bears the burden of proof on that issue as well because petitioners have “met the preconditions of Section 7491 on * * * [that] issue.” Generally, a taxpayer in this court bears the burden of proof.

7491 applies to all years at issue because the examination of petitioner’s returns for all years at issue began after July 22, 1998, the effective date of sec. 7491. - 6 - 2. Determination in Unreported Income Cases The Court of Appeals for the Ninth Circuit has determined that in order for the presumption of correctness to attach to a defici

Section 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(1), 112 Stat. 727. Respondent concedes that the examination in these cases began after July 22, 1998. Specifically, section 7

, Edwards v. Commissioner, 680 F.2d 1268, 1270 (9th Cir. 1982) (Commissioner's assertion of a 3 Pursuant to sec. 7491(a), the burden of proof as to factual matters shifts to respondent under certain circumstances. Petitioner has neither alleged that sec. 7491 applies nor established her compliance with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, maintain records, and cooperate fully with respondent's reasonable requests. Petitioner therefore bears the burden of proof. -

$15,904.33 severance payment in the disputed settlement amount and excluding the $31,750 attorney's fees compensation. OPINION 1. Burden of Proof The parties dispute whether the burden of proof in this case has been shifted to respondent pursuant to section 7491. Section 7491(a) imposes the burden of proof on respondent if the taxpayer introduces credible evidence with respect to any factual issue, -7- and complies with the requirements of section 7491(a) (2)(A) and (B) to substantiate all items

Section 7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(1), 112 Stat. 727. The record in these cases establishes that respondent’s examination of the Roses’ joint income tax returns began before July

t’s reasonable requests. A. The Estate’s Cooperation With Respondent Respondent urges us to revisit the question of the burden of proof now, arguing that the estate did not cooperate with respondent’s reasonable requests because the estate filed a 6Sec. 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 10

Whether Petitioner Is Liable for Additions to Tax for 2002 Section 7491 ( c) places on the Commissioner the burden of producing evidence that it is appropriate to impose a particular addition to tax or penalty .

Petitioners do not contend that section 7491 applies.

However, section 7491 may shift the burden to the Commissioner in specified circumstances, for example, where the taxpayer produces “credible evidence” and meets other requirements.

In the present case, the burden does not shift with respect to any factual issue relating to petitioner’s liability for the income tax deficiency because petitioner neither alleged that section 7491 was applicable nor established that she complied with the substantiation requirements of section 7491(a), as shown below.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

led to any deduction claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). This includes the burden of 3Before and during trial, petitioners made arguments with respect to shifting the burden of proof to respondent under sec. 7491. At the conclusion of trial, petitioners orally moved that the burden be shifted to respondent. The Court requested that the parties address this issue in their briefs. For the reasons discussed supra, petitioners’ oral motion will be denie

Discussion Burden of Proof As a preliminary matter, we note that section 7491 is applicable to this case because the examination in connection with this action was commenced after July 22, 1998, the effective date of that section.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

We find this evidence credible as to the factual issue in dispute and thus sufficient to shift the burden to respondent under - 11 - section 7491 to prove the classic cars were held as an investment and subject to capital treatment.12 B.

In the present case, the burden of proof does not shift with respect to any factual issue relating to petitioners’ liability for the income tax deficiency because petitioners neither alleged that section 7491 was applicable nor established that they complied with the substantiation requirements of section 7491(a), as shown below.

Burden of Proof Section 7491 is applicable to this case because the examination in connection with this action was commenced after July 22, 1998, the effective date of that section.

Under section 7491, the burden of proof shifts from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer’s tax liability. Sec. 7491(a)(1). It appears that the examination of the years in issue commenced after the effective date of section 7491. Petitioner has c

Petitioner does not contend that section 7491 applies.

Consequently, respondent provided sufficient evidence linking petitioners to the income underlying the statutory notices of deficiency.8 However, section 7491 may shift the burden to respondent in specified circumstances, for example, where the taxpayer produces “credible evidence”.

hree documents. The first document is a 4 Petitioner has the burden of proof. The burden of proving a factual issue relating to liability for tax shifts to the Commissioner under certain circumstances. Sec. 7491(a). Petitioner does not contend that sec. 7491 applies. Thus, petitioner bears the burden of proof. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). - 8 - certificate signed by the general secretary of the Union Nationale des Mutuelles Retraite des Instituteurs et des Fonct

a), (e), Income Tax Regs. The Court need not accept taxp.ayer's self-serving testimony when the taxpayer fails to present corroborative ¹°This principle would not be affected by sec. 7491(a) even if it applied to this case, which it does not because sec. 7491 applies to examinations begun post-July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. Sec. 7491 would not shift the burden of proof to respondent because Mr. Runkle fa

Section 7491 may operate, however, in specified circumstances to place the burden on the Commissioner. Section 7491 is applicable to court proceedings that arise in connection with examinations commencing after July 22, 1998, and reads in pertinent part: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Produces Credible Evidence.-- (1)

led to any deduction claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). This includes the burden of 3Before and during trial, petitioners made arguments with respect to shifting the burden of proof to respondent under sec. 7491. At the conclusion of trial, petitioners orally moved that the burden be shifted to respondent. The Court requested that the parties address this issue in their briefs. For the reasons discussed supra, petitioners’ oral motion will be denie

ption of section 1402(c)(1) apparently would not qualify petitioner for exemption from self-employment tax with regard to her work as secretary or executive assistant to the tribal president. 2(...continued) issue does not shift to respondent under sec. 7491. - 9 - Under section 6662, among other things, a 20-percent accuracy-related penalty is to be added to the portion of an underpayment of tax attributable to a substantial understatement of income tax. A substantial understatement of income t

7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. 5Petitioner relies on the footnote to the Senate report on sec.

s by petitioners should have been suspended until a future date when petitioners had gains from passive activities. See sec. 469(b). We address, first, whether petitioners produced evidence sufficient to shift the burden of proof to respondent under section 7491. We address, second, whether one of the exceptions to the definition of a “rental activity” applies and whether petitioners materially participated in that activity. Burden of Proof Determinations of the Commissioner in a notice of defic

7491, under certain circumstances, alters the burden of proof with respect to a taxpayer’s liability for taxes in court proceedings arising in connection with examinations commencing after July 22, 1998. Although this examination commenced after July 22, 1998, petitioner does not satisfy the requirements of sec. 7491(a). Not only did petitione

That same day, petitioner filed a motion to shift the burden of proof to respondent pursuant to section 7491 and a motion for interlocutory review of the March 17 order.

ceipt must contain the name of the donee, the date and location of the contribution, and a description of the property in detail reasonably sufficient under the circumstances. Id. If the taxpayer claims a deduction BPetitioner does not contend that sec. 7491 applies to this case, and he has not produced evidence to show he meets the requirements of sec. 7491(a). 9Sec. 170(b)(1)(A) provides, in pertinent part, that in the case of an individual, any charitable contribution to a church, educational

Although section 7491 may shift the burden to respondent in specified circumstances, petitioner here 4 The Court informs petitioner that our tax system, the Code, and the Tax Court have been firmly established as constitutional.

The burden does not shift in this case because petitioner neither alleged that section 7491(a) was applicable nor established that she fully complied with the statutory substantiation requirements of section 7491 as shown below.

es and certain other expenses, such as entertainment, gifts, and expenses relating to the use of listed properties, including 4 Because of the years involved, the examination of petitioners’ returns at issue commenced after July 22, 1998. Therefore, sec. 7491, which under certain circumstances shifts the burden of proof to the Commissioner, applies. However, for the burden to be placed on the Commissioner on this issue, the taxpayer must comply with the substantiation and record keeping requirem

However, the foregoing rule is subject to the provisions of section 7491, which was enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.

However, in certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

Because petitioners failed to comply with the requirements of section 7491(a), section 7491 does not place the burden of proof on respondent with respect to the claimed deductions.

- 27 - Section 7491, which is generally effective for court proceedings arising in connection with examinations commencing after July 22, 1998, authorizes the burden of proof to be shifted to the Commissioner if certain requirements are met. Section 7491(a)(1) provides that “If, in any court proceeding, a taxpayer introduces credible evidence with respect

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

ny or Separate Maintenance Payments Defined.–- For purposes of this section– 1(...continued) payment of $18,060. The payment in issue is $18,608, and the parties have not provided an explanation for this discrepancy. 2Petitioner does not argue that sec. 7491 applies in the instant case. Moreover, the resolution of the instant case does not depend upon which party has the burden of proof. Rather, the instant case is decided upon the basis of the fully stipulated facts and the documents contained

The legislative history of section 7491 defines “credible evidence” as “the quality of evidence which, after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted (without regard to the judicial presumption of IRS correctness).” H.

s that the understatement of tax is not solely attributable to the erroneous items of Mr. Capehart because both petitioner and Mr. Capehart owned the partnership interest in SGE, and petitioner participated in the 10Petitioner does not contend that sec. 7491 applies to this case and has not produced evidence to show she satisfied the requirements of sec. 7491(a). - 23 - joint investment. Respondent relies on Ellison v. Commissioner, T.C. Memo. 2004-57, to support his position. In Ellison, we hel

3 T.C. 213, 218 (2004), we held that when a taxpayer fails to state a claim in respect of penalties, additions to tax, and/or additional amounts, the Commissioner incurs no obligation to produce evidence in support of such determinations pursuant to sec. 7491. In the present case, the paragraphs that the Court did not strike in the amended petition relate to petitioner’s argument that he is not liable for an addition to tax under sec. 6651(a)(1). - 6 - return from petitioner for the year in issu

The Commissioner’s exercise of discretion is entitled to due deference; in order to prevail, the taxpayer must demonstrate that, in not granting relief, the Commissioner exercised his discretion arbitrarily, capriciously, 2Petitioner has not alleged sec. 7491 applies. - 10 - or without sound basis in fact or law. Jonson v. Commissioner, supra at 125; Butler v. Commissioner, supra at 292. We are not limited to the matters contained in the Commissioner’s administrative record when deciding this qu

Section 7491 may operate, however, in specified circumstances to place the burden on the Commissioner. Section 7491 is applicable to court proceedings that arise in connection with examinations commencing after July 22, 1998, and reads in pertinent part: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Produces Credible Evidence.-- (1)

In making this determination, we adopted the following definition of “credible evidence” as found in the legislative history of section 7491: “Credible evidence is the quality of evidence which, after critical analysis, the court would find sufficient upon which to base a decision on the issue - 7 - if no contrary evidence were submitted (without regard to the judicial presumption of IRS correctness).” [Id.

Section 7491 provides that the burden of proof may shift to the Commissioner if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining a tax liability, provided the taxpayer has substantiated all items at issue and has generally maintained books and records with - 6 - respect to the item at issue. The

ovides: SEC. 6015(b). Procedures for Relief From Liability Applicable to All Joint Filers.-- (1) In general.--Under procedures prescribed by the Secretary, if-- (A) a joint return has been made for a taxable year; 2 Petitioner has not contended that sec. 7491 applies to this case. - 8 - (B) on such return there is an understatement of tax attributable to erroneous items of 1 individual filing the joint return; (C) the other individual filing the joint return establishes that in signing the retur

13 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). Except as provided by section 6015, the requesting spouse bears the burden of proving that she satisfies each requirement of section 6015(b)(1)."" See Rule 142(a). "Petitioner does not contend that sec. 7491 applies to this case.and has not produced evidence to show she satisfied the requirements of sec. 7491(a). - 24 - Respondent does not dispute that petitioner meets the requirements of subparagraphs (A) and (E) of section 6015(b)(1) but cont

7491 was added to the Code by the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 726. Sec. 7491(a) applies with respect to examinations that are commenced after July 22, 1998. RRA 1998 sec. 3001(c), 112 Stat. 727. The record does not disclose when the examinations commenced in th

d (iii) the HG agreement gave exclusive managèment and control over the Gilman assets to Bergreen and Moody, who were also the executors of the estate. The estate contends that, by virtue of ¹°(...continued) and (4) the estate does not contend that sec. 7491 applies. - 19 - Bergreen's and Moody's power over HG, expenses relating to the Gilman assets were estate expenses. The estate also contends that Bergreen and Moody acted primarily as executors in facilitating HG's sale of Gilman assets, and

e Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). The parties dispute whether the burden shifts to respondent in this case. The estate argues that respondent has the burden of proof because the estate has satisfied all of the conditions under section 7491. The estate contends that it responded by fully cooperating with respondent’s requests for witness interviews and by responding to numerous requests for information and documents during audit. Respondent, however, argues that the estate d

Section 7491 applies to cases in - 18 - which the examination commenced after July 22, 1998. Accordingly, that section does not apply to the taxable years before the Court. In their response to respondent’s motion to dismiss and this Court’s Order to Show Cause, petitioners offer little to refute respondent’s allegations. Respondent’s frustration

Accordingly, for this reason if for no other, section 7491 does not shift to respondent the burden of proof with respect to the deficiency determinations contained in the notice of deficiency.

Section 7491 shifts to respondent the burden of proof as to these deficiencies when the taxpayer establishes that he or she met certain requirements. We conclude from the record that petitioner has not met those requirements. 2. Validity of Determinations Petitioner alleged in his petition that he did not receive the income reported to the Commissi

Respondent concedes that section 7491 is applicable to this case.

440 (1934). Alleged Investments Petitioner claims: (1) He was approached by Mr. Conway to make an investment in SJC; in September 1988 he invested 2 The record does not establish when the audit in this case began, and petitioner does not argue that sec. 7491 applies to this case. - 4 - approximately $125,000 in SJC; and in 1989 SJC filed for bankruptcy; (2) he suffered losses as a Lloyd’s underwriter; (3) in 1991 he invested $25,000 in a company called Marisco International Trading (Marisco) in

r for lack of prosecution or for other cause which the Court deems sufficient. Rule 123(b). Dismissal of a case is a sanction resting in the discretion of the trial court. Levy v. Commissioner, 87 T.C. 794, 803 (1986). 6 The trusts do not claim that sec. 7491 applies in these cases, nor have they introduced in these proceedings credible evidence on any factual issue. Sec. 7491(a)(1). - 8 - A taxpayer’s failure to proceed as required by the Court’s Rules, unexcused failure to appear at a trial, a

ence that she satisfies the requirements of subparagraphs (B), (C), and (D) of section 6015(b)(1), respondent contends that petitioner is not entitled to relief from joint and several liability under section 6015 in 5Petitioner does not contend that sec. 7491 applies to this case. - 8 - excess of that already allowed. Relying solely on an interpretation of respondent’s notice of determination, petitioner argues on brief that she is entitled to additional relief under section 6015(b). Her argumen

Since the IRS examination in this case commenced before July 22, 1998, section 7491, relating to burdens of proof and production, - 16 - is not applicable, and petitioners bear the burdens of proof and production with respect to the penalty.

r for lack of prosecution or for other cause which the Court deems sufficient. Rule 123(b). Dismissal of a case is a sanction resting in the discretion of the trial court. Levy v. Commissioner, 87 T.C. 794, 803 (1986). 6 The trusts do not claim that sec. 7491 applies in these cases, nor have they introduced in these proceedings credible evidence on any factual issue. Sec. 7491(a)(1). - 8 - A taxpayer’s failure to proceed as required by the Court’s Rules, unexcused failure to appear at a trial, a

OPINION Respondent concedes that section 7491 is applicable in the instant case.

n amendment to petitioner’s complaint to include a claim for physical injury, and that the reason the case was able to settle was because a payment was going to be made and received on that basis.” In this case, petitioners have neither argued that section 7491 is applicable to shift the burden of proof to respondent nor established that they complied with the requirements of section 7491(a)(2)(A) and (B).

OPINION Respondent does not dispute that section 7491 applies in the instant case.

r for lack of prosecution or for other cause which the Court deems sufficient. Rule 123(b). Dismissal of a case is a sanction resting in the discretion of the trial court. Levy v. Commissioner, 87 T.C. 794, 803 (1986). 6 The trusts do not claim that sec. 7491 applies in these cases, nor have they introduced in these proceedings credible evidence on any factual issue. Sec. 7491(a)(1). - 8 - A taxpayer’s failure to proceed as required by the Court’s Rules, unexcused failure to appear at a trial, a

Section 7491 is applicable in the present case.3 Nevertheless, petitioner has neither taken a position as to whether the burden of proof should be placed on respondent nor established that she complied with the requirements of section 7491(a). We conclude that the burden remains on petitioner to prove that she did not have unreported interest incom

Section 7491 does not require the burden of proof to be placed on respondent in the present case.1 Petitioner has neither taken a position as to whether the burden of proof should be placed on respondent nor established that he complied with the requirements of section 7491(a). We therefore conclude that the burden remains on petitioner to prove th

laimed in his 1997 Schedule C and in his 1998 Schedule C. Respondent further determined in the notice that petitioner is liable for each of the years at issue for the accuracy-related penalty under section 6662(a). OPINION The parties do not address section 7491. Petitioner filed his 1997 return on July 15, 1998, and his 1998 return on May 24, 1999. We presume that respondent’s examination of those returns began after July 22, 1998, and that section 7491(a) is applicable in the instant case. On

,615 that he received from his former employer under the settlement agreement. P claims that this amount is excludable under sec. 104(a)(2), I.R.C., as damages received on account of personal injuries and that the burden of proof is on R pursuant to sec. 7491, I.R.C. Held: Under sec. 7491(a)(1), I.R.C., if the taxpayer produces credible evidence as to any factual issue relevant to his tax liability, the burden of proof as to that issue shifts to the Commissioner. What constitutes a relevant fact

Section 7491 applies to examinations commenced after July 22, 1998. Id. Respondent concedes that the examination of petitioner’s 1996, 1997, and 1998 tax years began after the effective date of section 7491. Section 7491(a)(2) provides that the Commissioner will bear the burden of proof with respect to an issue pursuant to section 7491(a) if: (A) t

Burden of Proof Before enactment of section 7491 by the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA), Pub.

testimony at trial, the above amounts were arbitrarily determined by the return preparer, Mr. Beltran, who, as noted earlier, advised petitioners that substantiating information was not necessary for such deductions. 5 The Court takes cognizance of sec. 7491, which, in certain instances, places the burden of proof on respondent with respect to examination of returns commencing after July 22, 1998. Although the parties did not address the applicability of sec. 7491 to this case, the Court notes

92, 796 (1977). Petitioners contend that AIM accrued the interest at issue on a loan from petitioner the proceeds of which AIM used to buy the Whittington property from petitioner in early 1992. Petitioners bear the burden of proof on this issue.3 3 Sec. 7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. The revenue agent’s report is dated before July 22, 1998. Thus, petitioners bear the burden of proof. Rule 142(a)(1). - 12 - Rule 142(a)(1)

e Co. v. Helvering, 292 U.S. 435 (1934). Payments which qualify as charitable contribution deductions under section 170 are not deductible as ordinary and necessary business expenses under section 162 if they fail to qualify as legitimate business 5 Sec. 7491 was added to the Code by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727, effective for court proceedings arising from examinations commencing after July 22, 1998. Sec. 7491(a)

liability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioner does not contend, nor is there evidence, that his examination commenced after July 22, 1998, or that sec. 7491 is applicable in this case. - 5 - return for 1996 and offered no evidence showing that his failure to file was due to reasonable cause and not due to willful neglect. Accordingly, we hold that petitioner is liable for the addition to tax un

7491, which is effective for court proceedings that arise in connection with examinations commencing after July 22, 1998, and which can operate to place the burden on the Commissioner in enumerated circumstances. Petitioners here have not contended, nor is there evidence, that their examinations commenced after July 22, 1998, or that sec. 7491

titioner, HEH’s obligation was subject to certain conditions which required petitioner to identify several referrals, write a letter of reference, and make his energy payments on time. Moreover, under the terms of the partnership agreement, HEH was 7Sec. 7491, which is effective for Court proceedings that arise in connection with examinations commencing after July 22, 1998, places the burden on the Commissioner in certain circumstances. However, petitioner has not contended, nor is there evidenc

92, 796 (1977). Petitioners contend that AIM accrued the interest at issue on a loan from petitioner the proceeds of which AIM used to buy the Whittington property from.petitioner in early 1992. Petitioners bear the burden of proof on this issue.³ 3 Sec. 7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. The revenue agent's report is dated before July 22, 1998. Thus, petitioners bear the burden of proof. Rule 142(a)(1). - 12 - Rule 142(a)(1)

ment negotiations and settlement agreement; and (3) the intent of the payor. See United States v. Burke, 504 U.S. 229, 239 (1992); Thompson v. Commissioner, 866 F.2d 709, 711 (4th Cir. 1989), affg. 89 T.C. 632 (1987); Knuckles v. Commissioner, 349 4 Sec. 7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. Respondent issued the notices of deficiency in 1997. Thus, petitioners bear the burden of proof. Rule 142(a)(1). - 8 - F.2d 610, 612-613 (1

tuation, the burden of proof is placed on the Commissioner with respect to that issue. Id. 10 In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, sec. 7491 places the burden of proof on the Commissioner. Sec. 7491(a); Rule 142(a)(2). Decedent’s estate does not contend that sec. 7491 applies in this case. - 31 - In the case herein, respondent’s notice of deficiency increased the value of decede

ment negotiations and settlement agreement; and (3) the intent of the payor. See United States v. Burke, 504 U.S. 229, 239 (1992); Thompson v. Commissioner, 866 F.2d 709, 711 (4th Cir. 1989), affg. 89 T.C. 632 (1987); Knuckles v. Commissioner, 349 4 Sec. 7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. Respondent issued the notices of deficiency in 1997. Thus, petitioners bear the burden of proof. Rule 142(a)(1). - 8 - F.2d 610, 612-613 (1

7491, which is effective for Court proceedings that arise in connection with examinations commenced after July 22, 1998, places the burden on the Commissioner in certain circumstances. However, petitioner has not contended, nor is there evidence, that the examination of his 1995 return commenced after July 22, 1998, or that sec. 7491 applies.

Given that the deficiency notices were issued on April 19, 1999, and the determinations therein were based on a review of information returns, we find that examinations within the meaning of the effective date provisions of section 7491 occurred after July 22, 1998, in this case.

Burden of Proof Section 7491 applies to this case because the examination in this case began after July 22, 1998.

Seeing that section 7491 applies only to court proceedings arising from examinations commencing after July 22, 1998, Internal Revenue Service Restructuring and Reform Act of 1998, Pub.

onstrated that a 9-day delivery time is within the normal mailing period.6 Thus, petitioners 5In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, sec. 7491 places the burden of proof on respondent. Sec. 7491(a); Rule 142(a)(2). Sec. 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. Internal Revenue Service Restructuring

7491, which is effective for court proceedings that arise in connection with examinations commencing after July 22, 1998, and which can operate to place the burden on the Commissioner in enumerated circumstances. Petitioners here have not contended, nor is there evidence, that their examinations commenced after July 22, 1998, or that sec. 7491

OPINION At the outset, we note that petitioners failed to cooperate with respondent and as a result, pursuant to section 7491, have the burden of proof.

1994 because she worked for and had earnings from the photo shop for only 4 months in 1994. We disagree. Petitioner testified that she had problems with pregnancies in 1991 and 1992, and that she 2 Respondent does not bear the burden of proof under sec. 7491 because the examination in this case began on Apr. 23, 1997. Sec. 7491 applies to examinations commenced after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. - 8 -

e burden- shifting rule of section 7491(a)(1) has no application to that year. In contrast, we have found as a fact that respondent commenced the examination of petitioner’s 1996 income tax - 9 - return on July 28, 1998, after the effective date of section 7491. Therefore, the burden-shifting rule of section 7491(a)(1) may apply to that year. However, as will be discussed below, the limitations on the burden-shifting rule that are set forth in section 7491(a)(2)(A) and (B) serve to preclude the

Under section 7491, the burden of proof is placed on the Secretary in any court proceeding if the taxpayer: (1) Has complied with substantiation requirements under the Internal Revenue Code; (2) has maintained all records - 8 - required by the Internal Revenue Code and has cooperated with all reasonable requests by the Secretary for information, documen

termined to be incorrect.” Petitioner has offered no testimony or other evidence to support 3 In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, sec. 7491 places the burden of proof on respondent. See sec. 7491(a); Rule 142(a)(2). Sec. 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. See Internal Revenue Service Restru

Burden of Proof and Burden of Production When this case was called for trial, respondent represented that he has the burden of production regarding the additions to tax because the examination in this case began after July 22, 1998, but claimed that he does not bear the burden of proof on any issue in this case. See Internal Revenue S

In 1998, however, Congress enacted section 7491, effective July 22, 1998, under which the burden of proof will be placed on respondent if a taxpayer meets certain requirements.

Section 7491 Section 74915 was enacted in 1998. See Internal Revenue Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001(a), 112 Stat. 685, 726. Section 7491 applies to court proceedings arising in connection with examinations beginning after July 22, 1998. See RRA 1998 sec. 3001(c). Respondent’s examination in this ca

Section 7491 is effective for court proceedings arising in connection with examinations commencing after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726. The notice is dated January 22, 1999. The parties have not informed us whether the examination commenced on or before Ju

se provided by statute or determined by the Court); Welch v. Helvering, 290 U.S. 111, 115 (1933). We note that when this case was called for trial, respondent represented that the examination in the instant case commenced after the effective date of section 7491. See Internal Revenue Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001(c), 112 Stat. 685, 727 (providing that sec. - 8 - 7491 is applicable to court proceedings arising in connection with examinations com

Burden of Proof and Burden of Production When this case was called for trial, respondent represented - 5 - that he has the burden of production regarding the additions to tax because the examination in this case began after July 22, 1998, but claimed that he does not bear the burden of proof on any issue in this case. See Internal Re

33). Consequently, it is petitioner, the party who seeks to place a limit on its transferee liability, who has the burden of establishing that limit insofar as relevant.9 Rule 8(...continued) Snead, 221 P. 1032 (Okla. 1923)). 9Petitioner argues that sec. 7491 operates to place the burden of proving the value of the assets on respondent. Under sec. 7491(a)(1), Congress requires the burden of proof to be shifted to the Commissioner, subject to certain limitations, where a taxpayer introduces credi

7491, I.R.C., does not add to the burden of respondent as the movant for judgment on the pleadings in these cases. R has shown that partial summary judgment is appropriate for the accuracy-related penalties determined by R. Ps have abandoned their return positions, relying, instead, on a strategy of noncooperation and delay, undertaken behind

7491, I.R.C., does not add to the burden of respondent as the movant for judgment on the pleadings in these cases. R has shown that partial summary judgment is appropriate for the accuracy-related penalties determined by R. Ps have abandoned their return positions, relying, instead, on a strategy of noncooperation and delay, undertaken behind

Paladino does not contend that the burden of proof has shifted to respondent under section 7491, and there is no evidence in the record that the requirements of section 7491(a) have been met.

16 Section 7491 is relevant only as to factual issues; it is irrelevant as to legal issues. See Nis Fam. Tr. v. Commissioner, 115 T.C. 523, 538 (2000). 17 Petitioners assert that the burden of proof shifts to respondent under section 7491(a). Respondent retorts that petitioners have failed to meet the substantiation requirement of section 7491(a) and,

Section 7491 specifies that if “a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed,” then the Commissioner shall bear that burden “with respect to such issue.” I.R.C. § 7491(a)(1). In the case of a partnership, however, this rule applies only if the pa

In certain circumstances section 7491 may shift to the Com- missioner the burden of proof on factual issues.

and the taxpayer bears the burden of proving his entitlement to deductions and credits allowed by the Code. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Petitioner does not contend that the burden of proof should shift to respondent under section 7491. On his 2021 return petitioner claimed an offset of $46,908 as an “additional payment or credit.” The IRS initially understood that he was making a claim for relief under section 1341. That section provides for a recomputation of tax whe

At trial and in a Motion filed February 22, 2023, petitioner contends that it met the requirements of section 7491 and that the burden, therefore, should shift to respondent.

In certain circumstances section 7491 may shift to the Commissioner the burden of proof with respect to a factual issue relevant in ascertaining the taxpayer’s liability.

In certain circumstances section 7491 may shift the burden of proof to the Commissioner.

Consequently, 34 Petitioners’ petition, as amended, asserts that respondent has the burden of proof in regard to the adjustments set forth in the FPAAs because “[t]he FPAAs fail to identify the factual basis for any of the adjustments.” Petitioners make no argument on brief, however, concerning the applicability of section 7491, which, in specified circumstances, can shift the burden of proof to the Commissioner.

In certain circumstances section 7491 may shift to the Com- missioner the burden of proof on certain factual issues.

Receipt of a Partnership Interest in Exchange for Services Section 721(a) provides that “[n]o gain or loss shall be recognized to a .

In certain circumstances section 7491 may shift the burden of proof to the Commissioner on certain factual issues.

In certain circumstances, section 7491 may shift to the Com- missioner the burden of proof on certain factual issues.

Petitioners do not contend that they have met the requirements of section 7491 for shifting the burden of proof.

1(a), the burden of proof may shift to respondent if petitioner produces credible evidence with respect to any relevant factual issue and meets other requirements. Petitioner does not contend that the burden of proof should shift to respondent under section 7491. In any event only legal issues remain, so the burden of proof is irrelevant. See, e.g., Nis Fam. Tr. v. Commissioner, 115 T.C. 523, 538 (2000). III. Whether Hoops Is Entitled to a Deduction for the Deferred Compensation Liability in 201

Petitioner does not contend that she has satisfied the requirements of section 7491 for shifting the burden of proof.

In certain circumstances section 7491 may shift the burden of proof to the Commissioner.

that the burden of proof should shift to respondent under section 7491(a). Because we have concluded that petitioner failed to introduce credible evidence to substantiate the items in dispute, the burden of proof is not shifted to respondent under section 7491. 7 Under section 162(a), a deduction is allowed for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. A taxpayer must substantiate deductions claimed by keeping and producing ad

13 Ward incorrectly argues that the burden of proof should shift to the Commissioner under section 7491 because her testimony and other evidence presented at trial were uncontested.

Petitioners do not contend that they have satisfied the requirements of section 7491 for shifting the burden of proof.

In certain cir- cumstances section 7491 may shift the burden of proof to the Commissioner.

he taxpayers establish that they complied with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, to maintain required records, and to cooperate fully with the Commissioner’s reasonable requests. The Huffs have neither argued that sec. 7491 is applicable nor established that they complied with its requirements. - 19 - [*19] recreation. Sec. 183(a); sec. 1.183-2(a), Income Tax Regs. The term “activity not engaged in for profit” is defined by section 183(c) as “any activity othe

13 Ward incorrectly argues that the burden of proof should shift to the Commissioner under section 7491 because her testimony and other evidence presented at trial were uncontested.

dence regarding the deductibility and the value ofthe easement contribution and the burden ofproof has shifted to respondent under sec. 7491(a)(1). We decide the issues here on the basis ofthe record and the preponderance ofthe evidence and find the sec. 7491 issue moot. - 3 - [*3] (3) for negligence or disregard ofrules or regulations, a substantial understatement ofincome tax, or a substantial valuation misstatement. We sustain the 20% accuracy-related penalty for a substantial valuation misst

nerally presumed correct, and the taxpayerhas the burden ofproving them erroneous. See Rule 142(a); Blohm v. Commissioner, 994 F.2d 1542, 1548-1549 (11th Cir. 1993), T.C. Memo. 1991-636. Petitioner does not urge any shift in the burden of proofunder section 7491. For purposes ofassigning the burden ofproofin a transfer pricing case, we have treated respondent's "determination" as the aggre- gate section 482 adjustment appearing in the notice ofdeficiency. See Seagate Tech., Inc. v. Commissioner,

Petitioner does not contend that she satisfied the requirements ofsection 7491 for shifting the burden ofproof.

Petitioner does not contend that she satisfied the requirements ofsection 7491 for shifting the burden ofproof.

all be upon the petitioner, except as otherwise provided by statute or determined by the Court; and except that, in respect ofany new matter, increases in deficiency, and affirmative defenses, pleaded in the answer, it shall be upon the respondent." Section 7491 may shift the burden ofproofto the Commissioner if, among other things, the - 13 - taxpayer complies with substantiation requirements, maintains all required records, and cooperates with the Commissioner's requests for witnesses, informa

Petitioner does not con- tend (and could not plausibly contend) that she has satisfied the requirements of section 7491 for shifting the burden ofproof.

n ofproofto the Secretary when the taxpayerproduced credible evidence at trial, satisfied substantiation and record-keeping requirements, and cooperated with the Secretary's reasonable discovery requests). Petitioners have not met the requirements ofsec. 7491. - 27 - [*27] II. Whether Watchman Is a Sham Respondent argues that Watchman should be disregarded as a separate entity for Federal tax purposes on the basis ofthree alternative arguments: (1) Watchman is a sham, (2) it is a grantor trust a

n ofproofto the Secretary when the taxpayerproduced credible evidence at trial, satisfied substantiation and record-keeping requirements, and cooperated with the Secretary's reasonable discovery requests). Petitioners have not met the requirements ofsec. 7491. - 27 - [*27] II. Whether Watchman Is a Sham Respondent argues that Watchman should be disregarded as a separate entity for Federal tax purposes on the basis ofthree alternative arguments: (1) Watchman is a sham, (2) it is a grantor trust a

Taxpayers bear the burden ofproving that they have met the section 7491(a) requirements.¹4 The tax matters partner raised section 7491 for the first time in its reply brief.

n ofproofto the Secretary when the taxpayerproduced credible evidence at trial, satisfied substantiation and record-keeping requirements, and cooperated with the Secretary's reasonable discovery requests). Petitioners have not met the requirements ofsec. 7491. - 27 - [*27] II. Whether Watchman Is a Sham Respondent argues that Watchman should be disregarded as a separate entity for Federal tax purposes on the basis ofthree alternative arguments: (1) Watchman is a sham, (2) it is a grantor trust a

Petitioner does not contend that she satisfied the requirements ofsection 7491 for shifting the burden 5The year ofthe sale, 2013, was the only year from 2007 to 2016 for which petitioner and her husband filed separately.

n ofproofto the Secretary when the taxpayerproduced credible evidence at trial, satisfied substantiation and record-keeping requirements, and cooperated with the Secretary's reasonable discovery requests). Petitioners have not met the requirements ofsec. 7491. - 27 - [*27] II. Whether Watchman Is a Sham Respondent argues that Watchman should be disregarded as a separate entity for Federal tax purposes on the basis ofthree alternative arguments: (1) Watchman is a sham, (2) it is a grantor trust a

n ofproofto the Secretary when the taxpayerproduced credible evidence at trial, satisfied substantiation and record-keeping requirements, and cooperated with the Secretary's reasonable discovery requests). Petitioners have not met the requirements ofsec. 7491. - 27 - [*27] II. Whether Watchman Is a Sham Respondent argues that Watchman should be disregarded as a separate entity for Federal tax purposes on the basis ofthree alternative arguments: (1) Watchman is a sham, (2) it is a grantor trust a

n ofproofto the Secretary when the taxpayerproduced credible evidence at trial, satisfied substantiation and record-keeping requirements, and cooperated with the Secretary's reasonable discovery requests). Petitioners have not met the requirements ofsec. 7491. - 27 - [*27] II. Whether Watchman Is a Sham Respondent argues that Watchman should be disregarded as a separate entity for Federal tax purposes on the basis ofthree alternative arguments: (1) Watchman is a sham, (2) it is a grantor trust a

n ofproofto the Secretary when the taxpayerproduced credible evidence at trial, satisfied substantiation and record-keeping requirements, and cooperated with the Secretary's reasonable discovery requests). Petitioners have not met the requirements ofsec. 7491. - 27 - [*27] II. Whether Watchman Is a Sham Respondent argues that Watchman should be disregarded as a separate entity for Federal tax purposes on the basis ofthree alternative arguments: (1) Watchman is a sham, (2) it is a grantor trust a

Petitioners do not contend (and could not plausibly contend) that they have satisfied the requirements ofsection 7491 for shifting the burden ofproof.

Petitioners do not contend--nor does the Court find--that the burden ofproofshifts to respondent under section 7491 as to any issue offact.

Law and regulations Section 170(a)(1) provides that "[t]here shall be allowed as a deduction any charitable contribution." Section 170(f)(3)(A) generally bars a deduction for the charitable contribution ofa partial interest in property--i.e., "an interest in property which consists ofless than the taxpayer's entire interest in such property".

ting Humphrey's Ex'r, 295 U.S. at 602). C. Petitioners' Request a Remedy Because ofan Appearance ofBias. In addition to voicing objections to section 7443(f), petitioners object to several features ofTax Court litigation, such as the burden ofproof, sec. 7491; Welch v. Helvering, 290 U.S. 111 (1933); limitation ofreimbursement oflitigation costs, sec. 7430; the lack ofjury trials, see Rule 74(c) (allowing the taking of depositions requested by one party without the consent ofthe other party only

pplying Florida law to payments made pursuant to a divorce under Florida law), affd, 661 F. App'x 1027 (11th Cir. 4 Petitioner asserts that he has provided complete and conclusive documentation and credible testimony to shift the burden ofproofunder sec. 7491 with respect to his domicile. A taxpayer can shift the burden ofproofunder sec. 7491 with respect to an issue offact relating to liability for tax under subtitle A or B. Sec. 7491(a). To do so, the taxpayermust introduce credible evidence w

Governing Statutory Framework Once this Court hasjurisdiction over a deficiency case, section 6512(b)(1) provides that, ifthe Court "finds that there is a deficiency but that the taxpayerhas made an overpayment ofsuch tax, the * * * Court shall havejurisdiction to deter- mine the amount ofsuch overpayment." In that event, the "amount * * * [ofthe overpayment] shall, when the decision ofthe Tax Court has become fina

ayer to prove entitlement to claimed deductions. INDOPCO, Inc. v. Commis- sioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Petitioners do not contend that the burden ofproofshould shift to respondent under section 7491. In any event, with respect to the deficiencies only legal issues remain, so the burden ofproofis irrelevant. See, e.g., Nis Family Tr. v. Commissioner, 115 T.C. 523, 538 (2000). Generally, an accrual basis taxpayer may deduct ordinary a

Respondent has also carried his burden under section 7491 by producing documentation from employers and the insurance company and relying on the admissions in petitioner's 2010 return.

ayer to prove entitlement to claimed deductions. INDOPCO, Inc. v. Commis- sioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Petitioners do not contend that the burden ofproofshould shift to respondent under section 7491. In any event, with respect to the deficiencies only legal issues remain, so the burden ofproofis irrelevant. See, e.g., Nis Family Tr. v. Commissioner, 115 T.C. 523, 538 (2000). Generally, an accrual basis taxpayer may deduct ordinary a

ofdeficiency are generally presumed correct, and the taxpayerbears the burden ofproving them erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner does not con- tend that the burden ofproofshould shift to respondent under section 7491. In any event, because only legal issues remain, the burden ofproofis irrelevant. M g, Nis Family Tr. v. Commissioner, 115 T.C. 523, 538 (2000). B. Governing Statutory Structure Congress enacted the UBIT regime in 1950, prompted in part b

The "new matter" provision persisted in 1969 after the Court was reconstituted as an Article I court to be known as the United States Tax Court.¹° When Congress in 1998 addressed tax litigation procedure by enacting section 7491 (entitled "Burden ofProof") to shift the burden ofproofin some circumstances, the Tax Court rules then provided, as they had for decades and still do, that burden ofproofon "new matter" was on the respondent." Ofcourse, Congress has the power to override the Tax Court's

Petitioner has not come forward with evidence sufficient to shift the burden to respondent under section 7491; therefore, he bears the burden ofestablishing that his commission income was not subject to self-employmenttax.

Although section 7491 may shift the burden ofproofto the Commissioner in specified circumstances, petitioner here has not established that he meets the requisites under section 7491(a)(1) and (2) for such a shift.

the burden ofproving that the determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioners contend, however, that the burden ofproofwith respect to any relevant factual issue should shift to respondent under section 7491. Respondent disagrees. We conclude it is unnecessary to address the parties' disagreements and to determine whetherthe burden ofproofshould shift because the outcome of each ofthe present cases is determined on the preponderance ofthe evi

ofthe business. Commissioner v. Heininger, 320 U.S. 467, 471 (1943). Section 262, in contrast, generally precludes deduction of"personal, living, or family expenses." 7This burden may be shifted to the Commissioner as to factual issues, pursuant to sec. 7491, under certain circumstances not present in this case. Petitioners have not asserted such a shift, and petitioners have not maintained the required records nor cooperated with reasonable requests ofrespondent as required by sec. 7491(a)(2)

No section 7491 or Rule 142 basis exists for deviating from the general rule in these cases, so petitioner bears the burden ofproof. I. Intcom's For-Profit Status Under Section 183 The Code divides the universe ofa taxpayer's activities into two groups: those engaged in for profit and those not engaged in for profit. Generally, expenses attributable t

the burden ofproving that the determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioners contend, however, that the burden ofproofwith respect to any relevant factual issue should shift to respondent under section 7491. Respondent disagrees. We conclude it is unnecessary to address the parties' disagreements and to determine whetherthe burden ofproofshould shift because the outcome of each ofthe present cases is determined on the preponderance ofthe evi

v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We generally will not estimate a deductible expense unless the taxpayerpresents sufficient evidence 3Petitioners have not argued nor shown that the burden ofproofshould shift to respondent under sec. 7491. - 8 - to provide some basis upon which an estimate may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). Without such a basis, any allowance would amount to unguided largesse. See Williams v. United States, 245 F.2d 559, 560 (

den ofproof. See Rule 122(b); Borchers v. Commissioner, 95 T.C. 82, 91 (1990), aff'd, 943 F.2d 22 (8th Cir. 1991). Because petitioners have not argued or shown that the burden ofproof with respect to any factual issue should shift to respondent, see sec. 7491, they retain the burden ofproof. 4Petitioners filed a motion for leave to file out oftime an amended petition (motion for leave) and lodged an amended petition. Before the Court had acted on the motion for leave, the parties filed ajoint mo

Burden ofProof Petitioners argue that they have satisfied all ofthe requirements ofsection 7491 necessary to shift the burden ofproofto respondent pursuant to that section; i.e., they have "introduce[d] credible evidence with respect to any factual issue relevant to ascertaining the liability" in this case, see sec.

No section 7491 or Rule 142 basis exists for deviating from the general rule in these cases, so petitioner bears the burden ofproof. I. Intcom's For-Profit Status Under Section 183 The Code divides the universe ofa taxpayer's activities into two groups: those engaged in for profit and those not engaged in for profit. Generally, expenses attributable t

issioner's determination ofa taxpayer's liability in the notice ofdeficiency is presumed correct, and the taxpayer bears the burden ofproving that the determination is improper. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Although sec. 7491 may shift the burden ofproofin specified circumstances, petitioners did not argue, and in any event have not established, that they meet the prerequisites under sec. 7491(a)(1) and (2) for such a shift. - 20 - [*20] question before the Cour

ffarm property in 2004 should result in an accuracy-relatedpenalty under section 6662 for underpaymentoftax attributable to "negligence or disregard of rules and regulations" or to a "substantial understatement ofincome tax." The Commissioner, under section 7491, has the burden ofproduction for this penalty, which means the Commissionerhas to produce "sufficient evidence indicating that it is appropriate to impose the relevant penalty." Higbee v.

ffarm property in 2004 should result in an accuracy-relatedpenalty under section 6662 for underpaymentoftax attributable to "negligence or disregard of rules and regulations" or to a "substantial understatement ofincome tax." The Commissioner, under section 7491, has the burden ofproduction for this penalty, which means the Commissionerhas to produce "sufficient evidence indicating that it is appropriate to impose the relevant penalty." Higbee v.

ffarm property in 2004 should result in an accuracy-relatedpenalty under section 6662 for underpaymentoftax attributable to "negligence or disregard of rules and regulations" or to a "substantial understatement ofincome tax." The Commissioner, under section 7491, has the burden ofproduction for this penalty, which means the Commissionerhas to produce "sufficient evidence indicating that it is appropriate to impose the relevant penalty." Higbee v.

the burden ofproving that the determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioners contend, however, that the burden ofproofwith respect to any relevant factual issue should shift to respondent under section 7491. Respondent disagrees. We conclude it is unnecessary to address the parties' disagreements and to determine whetherthe burden ofproofshould shift because the outcome of each ofthe present cases is determined on the preponderance ofthe evi

the requisite profit objective, and the very little evidence provided in regard to petitioner's rudimentary style ofrecordkeeping did not show the adequacy of petitioner's substantiation or recordkeeping practices with respect to the requirements ofsection 7491. Accordingly, the burden has not shifted to respondent. I. Section 183 Under section 183(a), ifan activity is not engaged in for profit, then no deduction attributable to that activity is allowed exceptto the extentprovided by section 18

Although section 7491 may shift the burden ofproofin specified circumstances, petitioners have not establishedthattheymeet the prerequisites, under section 7491(a)(1) and (2), for such a shift.

311(b)(1)(A); see also McLaulin v.

311(b)(1)(A); see also McLaulin v.

Although section 7491 may shift the burden ofproofin specified circumstances, petitioners did not argue, and in any event have not established, that they meet the prerequisites, under section 7491(a)(1) and (2), for such a shift.

Although section 7491 may shift the burden ofproofin specified circumstances, petitionerhas not established that he meets the prerequisites under section 7491(a)(1) and (2) for such a shift.

311(b)(1)(A); see also McLaulin v.

311(b)(1)(A); see also McLaulin v.

Section 7491 does not affect our analysis in -4- this case because there are no factual issues as to which our holding depends upon which party bears the burden ofproof. Generally, an individual is entitled to a deduction equal to the qualified retirement contributions ofthe individual for the taxable year. Sec. 219(a); sec. 1.219-1(a), Income Tax

. Sec. 6330(c)(1)-(3). A. Rejection ofPetitioner's Offer-in-Compromise Petitioner contends that the Appeals Office abused its discretion when it denied his proposed offer-in-compromise. Respondent contends that the Appeals 3Petitioner has not raised sec. 7491, and, therefore, we will not consider the issue. Consequently, petitioner bears the burden ofproof. See Rule 142(a). - 10 - [*10] Office did not abuse its discretion because petitioner failed to submit a valid offer-in-compromise on a Form

Section 7491 shifts the burden ofproofto the.IRS with respect to a given factual issue where a taxpayer(1) introduces credible evidence with respect to that issue, (2) meets all applicable substantiation requirements, (3) complies with all recordkeeping requirements, and (4) cooperates with any reasonable requests for information. Sec. 7491(a); Hig

Our findings are supported by the preponderance ofthe.evidence. See Martin Ice Cream Co. v. Commissioner, 110 T.C. 189, 210 n.16 (1998). -10- [*10] Appeals conference), unless avoided by the taxpayer's deliberate refusal to receive the letter, is generally required ifthat letter is,to be considered.as having provided a prior opportunity

expired. II. Petitioner's Unreported Income The Commissioner's determinations in a notice ofdeficiency are generally presumed correct, and the taxpayer bears the burden ofproving that those determinations are incorrect.1° Rule 142(a)(1). 1°Although sec. 7491 may shift the burden to the Commissioner in certain circumstances, the section is applicable only to court proceedings that arise in connection with examinations commencing after July 22, 1998. See Williams v. Commissioner, 123 T.C. 144, 146

ends that the Appeals Office wrongfully denied petitioner's request to challenge the underlying liabilities or to discuss collection alternatives at a face-to-face collection due process hearing. As we discussed above, the 3Petitioner has not raised sec. 7491, and, therefore, we will not consider the issue. Consequently, petitioner bears the burden ofproof. See Rule 142(a). - 17 - [*17] Appeals Office correctly determined that petitioner was precluded from challenging the underlying tax liabilit

The Commissioner satisfies the burden by presenting sufficient evidence supporting the relevant penalty. Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Respondent determinedthat petitioners underpaid their income tax by $320,927, $376,318, and $491,571 for the years 2006, 2007, and 2008, respectively. These amounts exceed the "substa

at!petitioner can show that he . actually paid attorney's fees, he has not shown that they were not already allowed by respondent as part ofthe expenses in connection with the sale ofhis residence. 3No issue has been raised by the parties concerning sec. 7491 or whether there has been a shift in the burden ofproofor going forward with the evidence. Accordingly, petitioner has not established his entitlementto any such shift in the burden ofproofunder sec. 7491(a) regarding his liability for the

requirements ofsection 170(f)(11), section 1.170A-13(c)(3), Income Tax Regs. or DEFRA sec. 155. While reasonable cause may excuse their noncompliance for purposes ofa deduction under section 170(f)(11)(A)(ii)(II), no parallel exception exists under section 7491. Accord H.R. Conf. Rept. No. 105-599, at 241 (1988), 1998-3 C.B. 747, 995 ("Taxpa ers who fail to substantiate any item in accordance with the legal requirement ofsubstantiation will not have satisfied the legal conditions that are prere

requirements ofsection 170(f)(11), section 1.170A-13(c)(3), Income Tax Regs. or DEFRA sec. 155. While reasonable cause may excuse their noncompliance for purposes ofa deduction under section 170(f)(11)(A)(ii)(II), no parallel exception exists under section 7491. Accord H.R. Conf. Rept. No. 105-599, at 241 (1988), 1998-3 C.B. 747, 995 ("Taxpa ers who fail to substantiate any item in accordance with the legal requirement ofsubstantiation will not have satisfied the legal conditions that are prere

Under section 7491, the Commissioner bears the burden ofproduction with respect to the section 6662 penalty. This means that the Commissioner must come forward with sufficient evidence indicating that it's appropriate to impose the -75- [*75] relevant penalty. Higbee, 116 T.C. at 446. The Commissioner certainly showed here that the Heinbockels kept inad

Petitioner's attempt to first raise the issue ofsection 7491 on reply briefis untimely and prejudicial to respondent.

Petitioner referenced the bankruptcy in support ofits claim that, pursuantto section 7491, the partnership lacked sufficient net worth such that petitioner was not excluded from shifting the burden ofproofto respondent.

Petitioners argu section 7491 (a) shifts the burden of proof to respondent .

With regard to the relevant factors, petitioner has the burden ofproof because he does not qualify under section 7491 for a shift to respondent ofthe burden ofproof.

Accordingly, we find that petitioners have the burden of proof in this case under Rule 142 (a) because section 7491 (a) does not operate to shift the burden to respondent on tIhis record.

e of deficiency are presumed correct, and the taxpayerbears the burden ofproving that those determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner argues that the burden ofproofshifts to respondent under section 7491. Section 7491(a)(1) and (2) shifts the burden ofproofto the Commissioner as to any factual issue relevant to a taxpayer's liability for tax if(1) the taxpayer introduces credible evidence with respect to such issue, and (2) the taxpayer s

- 6 - Section 7491 does not require the,burden ofproofto be placed on respondent. Petitioner has neither asserted that the burden ofproofshould be placed on respondent nor established that he complied with the requirements of section 7491(a). Accordingly, petitioner bears the burden ofproof. See sec. 7491 (a)(2)(A) and (B). IL Omitted Interest Income Gro

the greater portion ofthe calendar year as having "custody". Sec. 1.152-4(b), Income Tax Regs. 4 Because we decide this case on a preponderance ofthe evidence, we don't need to address either party's arguments about shifting the burden ofproofunder section 7491. We don't have to do that kind ofmath here because Gary and Denise had a separation agreement that said N.S.'s "primary residence" would be with Denise. That means Denise was N.S.'s custodial parent. That also means there's no hope for t

Under the circumstances ofthis case, petitioners have not satisfied the burden ofproofand have not presented credible evidence under section 7491 to shift the burden to respondent.

Section 7491 Petitioner also argues that the burden of proof shifts to respondent under section 7491. Section 7491(a) (1) and (2) shifts the burden of proof to'the Commissioner as to any factual issue relevant to a taxpayer's liability for tax if (1) the taxpayer introduces credible evidence with respect to such issue and (2) the taxpayer satisfies

He has not argued that section 7491 would shift the burden to respondent, and the provisions of that section have not been met in any event.

en of proof with respect to relevant factual issues may shift to the Commissioner under section 7491(a). Petitioners did not argue or present evidence that they satisfied the requirements of section 7491(a). Therefore, there is no burden shift under section 7491. - 7 - I. The 2003 Loss Claim and the 2004 and 2005 NOL Carryforwards Petitioners argue that they should be allowed a deduction for a bad debt because petitioner had to personally "guarantee" both of the promissory notes. Petitioners' ar

Petitioners argu section 7491 (a) shifts the burden of proof to respondent .

Respondent has carried the burden of producing evidence, as imposed on him by section 7491(d), that the additions to tax under section 6651(a) (1) and (2) apply for both'2004 and 2006, because of Ms.

7491 is effective for court proceedings that arise in connection with examinations commencing after July 22, 1998. Internal Revenue Service Restructuring and Reform Act of '1998, Pub. L. 105-206, sec. 3001(c), 112.Stat. 727. Even if, the. expenses reported on Schedule C are ordinarÿ and necessary, petition r has failed to adequately substanti

uces credible evidence with respect to * * * such issue." Sec. 7491(a) (1) . o Petitioner argues that the burden shifts to respor).dent under sectiono74913(a) . Respondent disagrees and arguesathat peti-tioner has .not: satisfied the requirements of section 7491. A shift in - 31 - the burden of persuasion "has real significance only in the rare event of an-evidentiary tie." Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005), affg. T.C. Memo. 2003-212. We decide this case on the prepon

g to the issue, met substantiation requirements, maintained records, and cooperated with the Secretary's reasonable requests for documents, witnesses, and meetings. Sec. 7491(a). The estate argues that the burden of proof shifts to respondent under section 7491. Our resolution of the issue is based on the preponderance of the evidence rather than the allocation of the burden of proof; therefore, we need not address the estate's arguments with respect to the burden of proof. See Estate of Jorgens

The parties agree that petitioner does not qualify for a shift in the burden of proof under section 7491 because of the net worth limitations of section 7491(a) (2) (C).

Section.6664(c) (1), however, provides that no penalty shall be imposed if a taxpayer 2Pursuant to sec.

Petitioners argue that the provisions of section 7491 apply and that the burden of proof is on respondent.

to section 7491 (c) ; the Commissioner has the burden of production with respect to a taxpayer' s liability for a pena Lty and is, therefore, required to "come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty.". See Higbee v. Commissioner, 116 T. . 438 446 (2 01) . However, "once .the Commissioner.meets

3). In some cases the burden of proof with respect to relevant factual issues - 7 - may shift to the Commissioner under section 7491(a). Petitioners argue that the burden of proof has shifted to respondent because they have met the requirements of section 7491. The Court, however, as discussed below, finds that petitioners have not met the requirements of section 7491(a) and the burden of proof does not shift to respondent. Section 469 Passive Activity Losses Section 162 allows deductions for al

ayer introduces credible evidence with respect to * * * such issue.” Sec. 7491(a)(1). Petitioner argues that the burden shifts to respondent under section 7491(a). Respondent disagrees and argues that petitioner has not satisfied the requirements of section 7491. A shift in the burden of persuasion “has real significance only in the rare event of an evidentiary tie.” Blodgett v. Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005), affg. T.C. Memo. 2003-212. We decide this case on the preponderance

Section 7491-(a) shifts the burden of proof to the Commissioner in, certain situations. Petitioner does not argue that the burden of proof shifts to respondent under section 7491(a) - and has not shown that the threshold requirements of section 7491(a) were met. See Higbee v. Commissioner, 3:16-T.C. 438, 442-443 (2001) . Accordingly, petitioner bea

Petitioners do not argue that section 7491 causes the burden of proof to shift to respondent, and they have not established that they meet the requirements of section 7491 (a) (2) (A) and (B) .

Petitioners allege that they have satisfied all the prerequisites to the application of section 7491 and, therefore, respondent bears the burden of proof under section 7491(a) .

Petitioner does not argue (nor do we find) that he meets the requirements under section 7491 ( a) for a shifting of the burden of proof .

Petitioner has not alleged that section 7491 is applicable, nor has he established compliance with the requirements of section 7491(a)(2)(A) .

Id We do not-need to address'-whether additional tax under section 72(t) is an amount-to which section 7491 (c) applies .

Dependency Exemption Deduction Section 151(a) and (c) allows taxpayers an annual exemptio n deduction for each "dependent" as defined in section 152 ..

plicabl e exception to the additional tax imposed under section 72(t) . 13 Because the material facts in this case are deemed stipulated and otherwise _are undisputed, there is no issue with respect to .burden of production or burden of proof under section 7491 . Petitioner's argument does not constitute reasonable caus e for his failure to file a return for 2004, and he is liable for the addition to tax under section 6651(a)(1) . Because he failed to file a return for 2003, he was required to .

We deem petitioner to have conceded these issues and hold that respondent has no burden of production under section 7491 (c) as to the additions to tax .

7491 (c)' generally : provides that the Commissioner bears the burden of. production,.,,- with respect to-the liability of aan ,individual for .any penalty or addition to tax . The 'Commissioner- may meet his burden of production. by coming forward with sufficient evidence indicating that it is appropriate ;-to impose. the relevant penalty

In certain circumstances , however, section 7491 (a)(1) places the burden of proof on the Commissioner .

13 - On the record before us , we find that there is a substantial understatement for each of petitioner ' s taxable years 2005 and 2006 On that record, we further find that respondent has satisfied respondent's burden of production under section 7491(c ) with respect.

The Commissioner has the burden of production under section 7491('c) with respect to the accuracy-related penalty under section 6662.

Respondent has satisfied his burden of production under section 7491..(c) by establishing, as petitioner acknowledges, 10 - that petitioner was required to file a Federal income tax return for 2002 and that petitioner did not file a return for 2002 .

The taxpayer has the burcien of' proving that tihe requirements óf section 7491 havf lSeen niet.

f shifts to the Commissioner, however, with respect to a factual issue relevant to a taxpayer's liability for tax when the taxpayer introduces credible evidence with respect to the issu e (continued. . .) -10- and otherwise met. the requirements of section 7491. We may determine factual issues on the weight of the evidence, however, unless there is an evidentiary tie . See Knudsen v. Commissioner , 131 T .C. 185 (2008) ; Kendricks v . Commissioner , 124 T .C . 69, 75 (2005) (and the cases cited

to section 7491 (a) (1) , the ;burden of proof on factual ,:issues affect .the taxpayer's tax 'liability: may be,shifted to the . Commissioner where,,the "taxpayer introduces credible evidence . , with respect oto: *°* * such issue . The burden will, -shift-onlyi -If the taxpayer has, inter alia, :complied with, substantiation requirements : pursuant

Petitioners allege that they have satisfied all the prerequisites to the application of section 7491 and, therefore, respondent bears the burden of proof under section 7491(a) .

Petitioners have not alleged that section 7491(a ) applies, and they have neither complied with the substantiation requirements nor maintained all required records .

In this case there is no such shift because petitioner neither alleged that section 7491 was applicable nor established that he fully complied with the ..requirements of .section 7491(a)(2) .

Tax Under section 7491 (c), the Commissioner bears the burden of production with respect to a taxpayer' s liability for penalties or additions to tax .'' This means that the Commissioner "must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty ." Higbee v .

Section 7491 ( c) imposes on the Commissioner the burden of production with respect to additions to tax . In order to meet his burden of production, the Commissioner must come forward with sufficient evidence that it is appropriate to impose the relevant addition to tax or penalty . Higbee v . Commissioner, 116 T .C. 438, 446 (2001). However, the C

that "The burden of proof shall be upon the petitioner" . Petitioners bear the burden of showing the settlement is not includable in income as,respondent determined it is . There is no dispute about the burden of proof or the shifting of same under section 7491 . Respondent bears the burden - 7 - of proof with respect to the increased deficiency and the increased accuracy-related penalty . See Rule 142(a)(1) . Respondent also bears the burden of production with respect to the section 6662 ( a) a

Under section 7491 (a) the burden of proof reg rding a factual matter may shift to the Commissioner if the to payer produces credible evidence and meets the other requiremen s of the section . li - 8 - In this case however before we apply section 7491(a) we must first consider section 6201(d), because petitioner reasonably raised . the issue of ;the cor

.) - 12 - Section 6662(a) Penalty Section 7491(c) provides that the Commissioner .

In accordance with section 7491 ( a) .the burden'of proof may be shifted .to the Commissioner where a taxpayer has introduced credible evidence regarding factual issues-relevant to .

ovides, as a general rule : "The burden of proo f shall be upon the petitioner" . In certain .circumstances, however, if the taxpayer introduces credible evidence with . respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 . places, the burden of proof on the Commissioner. See sec . 7491(a)(1) ; Rule 142(a)(2) . Credible evidence is evidence that, after critical analysis, a court would find constituted a sufficient basis' .for a decision on the issue in fa

Petitioner has not alleged that section 7491 is applicable, nor has he established compliance with the requirements of section 7491 (a) (2) (A) .

Although section 7491 (a) may shift the burden of proof to the Commissioner in specified circumstances, petitioner has not established that he meets the requirements under section 7491 (a)(1) and ( 2) for such a shift .

Petitioner has not alleged that section 7491 .(a) applie , and he has neither complied with the substantiation requirements nor maintained all required records .

In certain circumstances , however , section 7491 ( a)(1) places .the burden of proof on the Commissioner .

Under section 7491,(a) the.burden`,may shift to the Commissioner ` regardih factual-matters,,if the taxpayer produces :credible .,evidence and meets the other requirements-'of the section. ,,Petitioner does not argue that he ;"sati-sfied the elements for a burden shift, but even if he ,did'advance.- this argument , petitioner did -not produce', suf-fi'ci

ned a journal of the net cashflow for each day's betting activity .: Although Mr . Dungca has bank records showing substantial withdrawals of cash that correspond to the 4Neither party raised the question of the burden of proof or the application of sec. 7491 . Under established principles and in general, petitioners bear the burden with respect to the disallowed deduction items, and respondent has the burden of production with respect to the accuracy-related penalty . - 8 entries in his journal

Petitioner has not alleged that section 7491 is applicable, nor has she established compliance with .the requirements of section 7491(a)(2)(A) .

In certain circumstances,,however, section 7491(a)(1) places the burden of proof on the Commissioner .' Petitioner has not alleged that section 7491 is applicable, nor has she established compliance with the requirements of section 7491(a)(2)(A) .

Petitioners also did not establish that they satisfy the requirements of section 7491('a)(2) .

er has the burden of proving that those determinations are erroneous . See Rule 142(a) ; Welch v. Helvering , 290 U.S . 111, 115 ( 1933 ) . In some cases the burden of proof with respect to relevant factual issues may shift to the Commissioner under section 7491 (a) . Petitioner did not present evidence, or argument that he satisfied the requirements of section 7491(a) . Therefore , the burden of proof . does not shift to respondent . Petitioner contends that he is entitled to deductions of $2,8

Petitioners do not contend that section 7491 (a) -(1(cid:127)) which shifts the b rden of proof to the I Commissioner if the requirements of section 7491(a)(2)`are met , applies .

gift tax, whereby the tax rate for a gift is set by looking at that year's gifts in relation to the donor's lifetime giving . Gifts of $10,000 per- 16 In the midst of this back-and-forth is an argument about who should bear the burden of proof under section 7491 . The issues in this case, however, are mostly a matter of applying law to uncontested facts, so we don't have to address who bears the burden of proof . See Estate of Christiansen v . Commissioner , 130 T .C . 1, 8 n .7 (2008), affd . F

In certain circumstances, however; if the taxpayer introduces credible evidence with-respect .-to any factual issue relevant to ascertaining the proper tax liability,° section 7491 places the burden of proof on the Commissioner .

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner .

Section 1366 (a) provides that a shareholder of an S corporation shall take into account his pro rata share of the S corporation's items of income, loss, deduction, or credit .

hat in 2001 petitioner did not have a tax home in Boise, Idaho, for purposes of section 162(a)(2) . Petitioner's claimed $27,294 in travel expense deductions is denied . This case is decided on the preponderance of the evidence, and is unaffected by section 7491 . See Estate of Bongard v . Commissioner, 124 T .C. 95, 111 (2005) . To reflect the foregoing, . Decision will be entered for respondent .

Petitioner did not argue that section 7491 is applicable, nor did he establish that the burden of proof should shift to respondent .

Under section 7491, the burden of proof may shift from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer' s tax liability . Sec . 7491 ( a)(1) . In this case there is no such shift because petitioner neither alleged that section 7491 was applicable nor estab

marketability (2,057,475 ) $7,294,683 FMV of each gifted 30-percent interest $2,188,405 Total value of gifted AFLP interests $6,565,215 * * 3 x $2,188,405 = $6,565,215 . This case is decided on the preponderance of the evidence and is unaffected by section 7491 . See Estate of Bongard v . Commissioner, 124 T .C . 95, 111 (2005) .13 To reflect the foregoing, Decision will be entered under Rule 155 . 13 Because of the way AFLP's capital accounts were maintained, petitioner argues that on Dec . 1,

. As discussed below, we find that petitioner has failed to substantiate her claimed expenses and maintain required records . The outcome of this case, however, willllbe based on th e preponderance of the evidence standard nd thus is unaffected b y section 7491 . See Estate of Bongard v .'Commissioner , 124 T .C . 95, 111 (2005) . Although respondent had not accept d petitioner's amended tax return as of the date of the trial, respondent's litigating position is that petitioner's daycare w s not

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 shifts the burden of proof to the Commissioner .

Neither party raised section 7491 as an issue .

In this case there is no such shift because petitioner neither alleged that section 7491 was applicable nor established that she fully complied with the requirements of section 7491(a)(2) .

Section 7491 shifts the burden of proof to the Commis- . sioner when the taxpayer has. produced credible evidence. How- ever, the Hurfords' lawyers withdrew their section 7491 motion, so Rule 142 applies. - 81 - attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a ta

Rule .142(a) provides that-the "burden of proof shall be upon the petitioner" .

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 shifts the burden of proof to the Commissioner .

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 - 5 - places the burden of proof on the Commissioner .

Under section 7491, the burden of proof may shift to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's liability. Sec . 7491(a)(1) . Where the Commissioner raises a new matter or claims an increase in the deficiency, however, the burden of proof remains upon the Commissio

Under section 7491, the Secretary has the burden of production in any court proceeding with respect to the liability of any individual for any penalty, addition to tax, or any additional amount under that title of the Internal Revenue Code . Petitioner's 2002 Federal income tax return was due to be filed on April 15, 2003 . It was filed on June 24, 2004

OPINION Burden of Proof Section 7491 (c) provides that the Commissioner shall bear the burden of production with respect to the liability of any individual for additions to tax .

However, pursuant t o section 7491 ( a), the burden of proof with respect to any factual issue relating to ascertain',ng the liability for tax shifts to the .Commissioner if the taxpayer : (1) Maintained adequate records; (2) satisfied the substantiation requirements ; (3) cooperated with the Commissioner's agents ; and (4) during the Court proceeding introduce d credib

7491 in some instances shifts the burden of proof to the Commissioner. Petitioner has neither alleged nor established that he has satisfied the requirements of that section. To the extent that respondent may have had the burden of proof in this case, the Court is satisfied that respondent met that burden. - 2 - The decision to be entered is n

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 shifts the burden of proof to the Commissioner .

Petitioner did not argue that section 7491 is applicable in these cases, nor did h e establish that the burden of proof should shift to respondent .

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 shifts the burden of proof to the Commissioner .

his opinion should not be cited as authority. 1Unless otherwise indicated, section references hereafter are to the Internal Revenue Code in effect for the year at issue. This case is decided without regard to the burden of proof. In some instances, sec. 7491 shifts the burden of proof to respondent. Since this case involves only a question of law, sec. 7491 is not applicable here. - 2 - Respondent determined a deficiency of $2,835 in petitioner’s Federal income tax for the year 2002. The sole is

Section 7491 shifts the burden of proof to the Commissioner if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining a tax liability, provided the taxpayer has maintained books and records, and has cooperated with reasonable requests by the Commissioner for witnesses, information, documents, meetings,

en to shift. It is unnecessary for us to address the parties’ disagreements and to determine whether the burden of proof has shifted because the outcome of this case is determined on the preponderance of the evidence after trial and is unaffected by section 7491. Estate of Bongard v. Commissioner, 124 T.C. 95 (2005) (citing Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th - 14 - Cir. 2005), affg. T.C. Memo. 2003-212; Estate of Stone v. Commissioner, T.C. Memo. 2003-309). II. Application of Sec

Petitioners do not contend that section 7491 is applicable in this case, nor did they establish that the burden of proof should shift to respondent .

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 shifts the burden of proof to the Commissioner .

Petitioner did not argue that section 7491 is applicable in this case, nor did he establish that the burden of proof should shift to respondent .

all information. However, he ignores the fact that Ms. Cochran granted his requested extension and allowed him until June 1, 2004, to submit information. Additionally, petitioner has not identified any documents or other information that he 15 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioner’s returns did not commence after July 22, 19

Petitioner did not argue that section 7491 is applicable in these cases, nor did he establish that the burden of proof should shift to respondent.

Petitioners did not argue that section 7491 is applicable in this case, nor did they establish that the burden of proof should shift to respondent .

Respondent ' s Burden of Production Under section 7491 ( c), respondent bears the burden of production with respect to a taxpayer's liability for penalties or additions to tax .

dent’s determinations.” Petitioner’s argument is without merit. Generally, a taxpayer bears the burden of proving the Commissioner’s determinations incorrect. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).14 The burden was on 14 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioner’s returns did not commence after July 22, 19

on. 3. Deadline for Submission of Information Petitioner argues that Ms. Cochran abused her discretion by not allowing his counsel additional time to submit information to be considered. Petitioner’s argument is not supported by the record. 12 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioner’s returns did not commence after July 22, 19

ad more than sufficient information to review respondent’s determination. 3. Deadline for Submission of Information Petitioners argue that Ms. Cochran abused her discretion by not allowing their counsel additional time to submit information 13 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioners’ returns did not commence after July 22, 19

Thus , petitioners substantially understated their income for those years, and respondent ' s burden of production under section 7491 (c) has been met .

With respect to penalties, section 7491 (c) ordinarily imposes the burden of production on respondent , as discussed below .

ring. Additionally, petitioners have not identified any documents or other information that they believe Ms. Cochran should have considered but that they were unable to produce because of the deadline for submission. Given the thoroughness 19 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioners’ returns did not commence after July 22, 199

es of Evidence . See, e . g ., Richardson v . Commissioner, T .C . Memo . 2005-143 . Because petitioner failed to cooperate, to maintain required records, or to present credible evidence , he is not entitled to have the burden of proof shifted under section 7491 ( a) . Section 6201 (d), however, also imposes on respondent the burden of producing reasonable and probative information concerning a deficiency based on third-party information returns where : the taxpayer asserts a reasonable dispute

ad more than sufficient information to review respondent’s determination. 3. Deadline for Submission of Information Petitioners argue that Ms. Cochran abused her discretion by not allowing their counsel additional time to submit information 14 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioners’ returns did not commence after July 22, 19

One is section 7491, with principles relevant to deficiency determinations set forth in subsection (a) and rules governing penalties and additions to tax addressed in subsection (c) . Section 7491(a)(1) may shift the burden to the Commissioner with respect to factual issues affecting liability for tax where the taxpayer introduces credible evidence, but t

dent’s determinations.” Petitioners’ argument is without merit. Generally, a taxpayer bears the burden of proving the Commissioner’s determinations incorrect. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).16 The burden was on 16 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioners’ returns did not commence after July 22, 19

Petitioner does not contend that section 7491 is applicable, nor did he establish that the burden of proof should shift to respondent.

The Hunters have neither argued that section 7491(a) applies nor established that they complied with the requirements of section 7491 (a)(2) .

sioner in a notice of deficiency are presumed correct, and the burden of proof is on the taxpayer to prove that the determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933).2 2Since the issue in this case is legal in nature, sec. 7491, which in some circumstances shifts the burden of proof to respondent, is not applicable here. - 4 - Section 151(c) allows taxpayers to deduct an annual exemption amount for each “dependent” as defined in section 152. Under section 152(a),

Under section 7491, the burden of proof shifts from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability. Sec . 7491(a)(1) . Petitioner does not argue that the burden of proof should be shifted to respondent under section 7491 . Regardless of wh

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 shifts the burden of proof to the Commissioner.

Section 7491 does not affect our analysis because our holding does not depend upon which party has the burden of proof ; the evidence in the record establishes the facts and the resolution of the disputed IRA deduction involves a matter of law . Although respondent first contends that petitioners have not substantiated the payment made to petitione

e exceptions to the early distribution penalty also apply to early distributions from a traditional IRA. * * * The following 3 The facts are not in dispute, and the issue is essentially one of law. Accordingly, we decide the issue without regard to sec. 7491. - 6 - exceptions to the 10% penalty also apply when early distributions are made from an IRA. * * * * * * * Education Expenses. The 10% penalty does not apply if the individual uses the IRA money to pay for “qualified higher education expen

7491 in some instances shifts the burden of proof to the Commissioner. That section is not applicable in this case because the issues are legal and not factual. - 2 - Respondent determined a deficiency in petitioner’s Federal income tax in the amount of $3,308 for 2001. The issues for decision are whether, for the year 2001, petitioner is ent

7491, the burden of proof shifts to the Commissioner if the taxpayer complies with the requirements to substantiate any item and maintains records and cooperates with reasonable requests for witnesses, information, documents, meetings, and interviews. The facts of this case do not warrant a shift in the (continued...) - 2 - The decision to be

Under section 7491, the burden of proof shifts from the taxpayer to the Commissioner if the taxpayer produces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer’s liability. Sec. 7491(a)(1). Petitioners have neither argued that the burden of proof should shift nor satisfied the criteria that would cause the burden o

his opinion should not be cited as authority. 1Unless otherwise indicated, section references hereafter are to the Internal Revenue Code in effect for the year at issue. This case is decided without regard to the burden of proof. In some instances, sec. 7491 shifts the burden of proof to respondent. Since this case involves only a question of law, sec. 7491 is not applicable here. - 2 - Respondent determined a deficiency of $1,586 in petitioners’ Federal income tax for the year 2001. The sole is

Petitioner has neither argued that section 7491 is applicable to shift the burden of proof to respondent nor established that he complied with the requirements of section 7491(a)(2).

In - 6 - certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining proper tax liability, section 7491 places the burden of proof on the Commissioner.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

n a trade or business under section 162(a), subject to section 165(d), which limits the deduction for losses to the extent of the gains realized from gambling. Boyd v. United States, 762 F.2d 1369, 3Because the issue in this case is legal in nature, sec. 7491, which in some circumstances shifts the burden of proof to respondent, is not applicable. - 5 - 1372 (9th Cir. 1985); Valenti v. Commissioner, T.C. Memo. 1994-483. The parties agree that petitioners were not professional gamblers and were n

‘some evidentiary foundation linking the taxpayer’” to the income-producing activity or introduce substantive evidence “‘demonstrating that the taxpayer received unreported income’”. Krohn v. Commissioner, T.C. Memo. 2005-145 (quoting Weimerskirch 2 Sec. 7491 does not shift the burden of proof to respondent because petitioners have neither alleged that sec. 7491 is applicable nor established that they complied with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, maintain re

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

7491, under certain circumstances, shifts the burden of proof to the Commissioner. However, for the burden to be placed on the Commissioner, the taxpayer must comply with the substantiation and record-keeping requirements of the Internal Revenue Code. Sec. 7491(a)(2)(A) and (B). On this record, petitioners have not wholly satisfied that requir

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

- 8 - fee of $100. In exchange, petitioner received a variety of tax- related products, services, and advice from Renaissance. Neither petitioner nor Cecilia Abloso was otherwise engaged in any home-based business during 2000. In essence, petitioner did little more than pay a monthly membership fee to TRS for generally misleading or ill

Section 7491 In general, the taxpayer bears the burden of proving that the Commissioner’s determinations in the deficiency notice are in error. See Rule 142(a)(1). Section 7491(a)(1) provides, however, that “[i]f * * * a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining * * * [the taxpayer’s proper tax

Section 7491 may modify the foregoing general rule in specified circumstances, with principles relevant to deficiency determinations set forth in subsection (a) and rules governing penalties and additions to tax addressed in subsection (c). Section 7491(a)(1) may shift the burden to the Commissioner with respect to factual issues where the taxpayer

However, section 7491 may shift the burden to the Commissioner in specified circumstances, for example, where the taxpayer produces "credible evidence" and meets other requirements.

t’s reasonable requests. A. The Estate’s Cooperation With Respondent Respondent urges us to revisit the question of the burden of proof now, arguing that the estate did not cooperate with respondent’s reasonable requests because the estate filed a 6Sec. 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 10

. 6662(h)(2)(A). There is a substantial valuation misstatement if “the value of any property (or the adjusted basis of any property) claimed on any return * * * is 200 percent or more of the amount determined to be the correct amount of such 7 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioner’s returns did not commence after July 22, 19

of Petitioner stipulated the receipt of the income underlying the notices of deficiency for all the taxable years. We do not discuss the burden of proof because the outcome of this case turns on the preponderance of the evidence and is unaffected by section 7491. See Estate of Bongard v. Commissioner, 124 T.C. 95, 111 (2005) (citing Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C. Memo. 2003-212); Estate of Stone v. Commissioner, T.C. Memo. 2003-309). III. Filing Require

taxpayers prove their time spent by “any reasonable means.” Reasonable means are not limited to “Contemporaneous daily time reports, logs, or similar documents,” 2 The Lees argued that the burden of proof should be shifted to the Commissioner under section 7491. We find, however, that they failed to cooperate fully with the IRS during the audit and IRS appeals process by failing to cooperate with the IRS’s reasonable requests for information, interviews, and documents. See sec. 7491(a)(2)(B). W

t’s reasonable requests. A. The Estate’s Cooperation With Respondent Respondent urges us to revisit the question of the burden of proof now, arguing that the estate did not cooperate with respondent’s reasonable requests because the estate filed a 6Sec. 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 10

are presumed correct, and the taxpayer bears the burden of proving that the Commissioner's determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner did not assert that the burden shifted to respondent under section 7491. We therefore treat petitioner as having conceded this issue and find that the burden remains with petitioner. We follow the Court of Appeals opinion squarely .on point when appeal from our decision would lie to that court absent stipula

r is entitled to deduct a portion of the debt, $10 million, because it was partially worthless.3 More broadly speaking, we are asked to 3Petitioner has the burden of proof because the examination commenced before July 22, 1998, the effective date of sec. 7491. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. - 14 - decide whether a creditor may deduct a bad debt where the creditor’s actions contributed to the debtor’s default. We pr

at under section 7491(a), the burden of proof does not shift to respondent but remains with petitioners. We do not reach this issue because we find that the outcome of this case is determined on the preponderance of the evidence and is unaffected by section 7491. See Estate of Bongard v. Commissioner, 124 T.C. 95, 111 (2005) (citing Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C. Memo. 2003-212); Estate of Stone v. Commissioner, T.C. Memo. 2003-309). II. Arm’s-Length Qu

Section 7491 was added to the Code by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727, effective for court proceedings arising from examinations commencing after July 22, 1998. Section 7491(a)(1) provides that the burden of proof is on the Commissioner in specified circumstances. While

1999-196. Payments not made under a divorce or separation instrument may not be deducted by the payor spouse. See Taylor v. Commissioner, 55 T.C. 1134, 1138 (1.971). We decide the instant case on the record without regard to the burden of proof or section 7491. Petitioner contends that his payments to his thrift savings plan are deductible for the following reasons: From the divorce instrument, the Thrift Savings Plan (TSP) portion of petitioner's retirement was composed of a deferred compensat

of Petitioner stipulated the receipt of the income underlying the notices of deficiency for all the taxable years. We do not discuss the burden of proof because the outcome of this case turns on the preponderance of the evidence and is unaffected by section 7491. See Estate of Bongard v. Commissioner, 124 T.C. 95, 111 (2005) (citing Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C. Memo. 2003-212); Estate of Stone v. Commissioner, T.C. Memo. 2003-309). III. Filing Require

Although section 7491 may shift the burden of proof to respondent in specified circumstances, petitioner here has not established that he meets the requisites under section 7491(a)(1) and (2) for such a shift.

9, 1998, a substitute for return was posted to the account that respondent maintained with respect to petitioner for her taxable year 1994. We find that respondent's examination of petitioner's taxable year 1994 began before July 23, 1998, and that sec. 7491 is not applicable in the instant case. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. % - 10 - THROUGH HER. The check for these funds was issued jointly to Petitioner AND Mr.

e, the burden of proof does not shift to respondent. As to the sec. 6662(a) penalty, the burden of production is on respondent. The Court’s conclusions, therefore, on all issues, are made with due consideration to the burden of proof requirements of sec. 7491. - 3 - Petitioners’ legal residence at the time the petition was filed was Vancouver, Washington. Petitioner is an attorney who has a master of laws degree in taxation and was previously employed as an auditor by the IRS from 1987 to 1999.

at under section 7491(a), the burden of proof does not shift to respondent but remains with petitioners. We do not reach this issue because we find that the outcome of this case is determined on the preponderance of the evidence and is unaffected by section 7491. See Estate of Bongard v. Commissioner, 124 T.C. 95, 111 (2005) (citing Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C. Memo. 2003-212); Estate of Stone v. Commissioner, T.C. Memo. 2003-309). II. Arm’s-Length Qu

collection action. Whether respondent can or should compromise petitioner’s tax liability for years outside of those for which collection action has been proposed is not relevant to our determination. Petitioner’s argument is without merit. 12 While sec. 7491 shifts the burden of proof and/or the burden of production to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioner’s returns did not commence after July 22, 19

A. Medical and Dental Expenses Section 213(a) authorizes a taxpayer, if he itemizes his deductions, to deduct expenses paid during the taxable year for 4Although a taxpayer may contend that the burden of proof should shift to the Commissioner under sec. 7491, sec. 7491 does not shift the burden of proof in this case. Respondent concedes that he has the burden of proof with respect to the only open issues--the increased deficiency and the fraud penalty. - 12 - the medical care of the taxpayer, t

Section 7491 may operate, however, in specified circumstances to place the burden on the Commissioner. Section 7491 is applicable to court proceedings that arise in connection with examinations commencing after July 22, 1998, and reads in pertinent part: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Produces Credible Evidence.-- (1)

of $5,973, cellular phone expenses of $708, and “other amounts” deducted from petitioner’s paycheck by Pillow Express of $1,464. 3Because of the year involved, the examination of petitioner’s return at issue commenced after July 22, 1998. Therefore, sec. 7491, which under certain circumstances shifts the burden of proof to the Commissioner, applies. However, for the burden to be placed on the Commissioner, the taxpayer must comply with the substantiation and record-keeping requirements of the In

Although section 7491 may shift the burden to respondent in specified circumstances, petitioners here have not established that they meet the prerequisites under section 7491(a)(1) and (2) for such a shift.

set the balances he owed. The determinations of the Commissioner in a notice of deficiency are presumed correct, and the burden is on the taxpayer to prove that the determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933).8 8Sec. 7491 shifts the burden of proof to the Commissioner if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining a tax liability provided the taxpayer has maintained books and records and has cooperated

sec. 1012. Under section 1016(a)(1), the basis of property must be adjusted for expenditures, receipts, losses, or other items, properly 4Generally, the burden of proof is on petitioner. Rule 142(a)(1). The burden may shift to the Commissioner under sec. 7491 if the taxpayer establishes compliance with the requirements of sec. 7491(a)(2)(A) and (B) by substantiating items, maintaining required records, and fully cooperating with the Secretary’s reasonable requests. Prior to trial, petitioners di

ords, including inventories, as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return of such tax". Moreover, even if books and records are maintained by the 3Sec. 7491 modifies this general rule and, in some instances, shifts the burden to the Commissioner. In this case, the burden does not shift to respondent because petitioner did not fulfill the requirement of sec. 7491(a)(2), which, among other require

, and this opinion should not be cited as authority. 1Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect for the year at issue. The Court decides this case without regard to the burden of proof under sec. 7491. - 2 - Respondent determined a deficiency of $1,909 in petitioners’ Federal income tax for the year 2002. The sole issue for decision is whether petitioners are entitled to the section 151 dependency exemption for one child for the taxable

al.--The term “alimony or separate maintenance payment” means any payment in cash if–- 4The facts are not in dispute, and the issue is a question of law; therefore, with respect to the burden of proof, the Court need not address the applicability of sec. 7491. Higbee v. Commissioner, 116 T.C. 438 (2001). - 5 - (A) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument, (B) the divorce or separation instrument does not designate such payment as a payment w

7491, concerning burden of proof, has no bearing on this case. - 3 - On the Form 2106 relating to petitioner’s employment with West, petitioner reported the following expenses: Expense Amount Vehicle expenses $7,323 Parking fees, tolls & transportation, etc. 199 Expenses away from home overnight 1,766 Other business expenses 2,048 Total 11,33

Although section 7491 may shift the burden of proof to respondent in specified circumstances, petitioner here has not established that he meets the prerequisites under section 7491(a)(1) and (2) for such a shift.

- 2 - is not reviewable by any other court, and this opinion should not be cited as authority. Respondent determined a deficiency of $8,579 in petitioner’s Federal income tax for the year 2001, an addition to tax under section 6651(a)(1) in the amount of $410, and an accuracy-related penalty under section 6662(a) in the amount of $1,716

tation, including a phone bill and rental agreement, but she did not demonstrate her contribution to total household expenses. Thus, regardless of petitioner’s marital status, 2Under some circumstances, the burden of proof shifts to respondent under sec. 7491. That burden does not shift to respondent in this case because petitioner failed to maintain records and comply with the requirements of substantiation as required by sec. 7491(a)(2). - 4 - discussed infra, petitioner failed to establish he

Section 32(d) provides that “In the case of an individual who is married (within the meaning of section 7703), this section shall apply only if a joint return is filed for the taxable year under section 6013”.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual - 4 - issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

Burden of Proof Section 7491 is applicable to this case because the examination in connection with this action was commenced after July 22, 1998, the effective date of that section.

urden to shift. It is unnecessary for us to address the parties' disagreements and to determine whether the burden of proof has shifted because the outcome of this case is determined on the - 28 - preponderance of the evidence and is unaffected by section 7491. See Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C. Memo. 2003-212; Estate of Stone v. Commissioner, T.C. Memo. 2003-309. II. Sections 2035(a) and 2036(a) The purpose of section 2036 is to include in a deceased t

In this case petitioner has neither argued that section 7491 is applicable to shift the burden of proof to respondent nor established that he complied with the requirements of section 7491(a)(2).

000 loan from Wells Fargo and that he transferred this $200,000 in loan proceeds to Garza, who in turn transferred the $200,000 to Adrical on petitioner's behalf. 2 Petitioner does not assert that the burden of proof should shift to respondent under sec. 7491. Petitioner alleges that this transfer gave him a stock interest in Adrical. Petitioner then claims that the $197,050 Wells Fargo loan proceeds PGI received in 2000 were received by PGI only as his nominee, and that the $197,050 was used by

under these circumstances. Reviewed and adopted as the report of the Small Tax Case Division. To give effect to the foregoing, An appropriate decision will be entered for respondent. 4 The parties have not presented argument as to the application of sec. 7491. The Commissioner bears the burden of production in any Court proceeding with respect to the liability for any addition to tax. Sec. 7491. To meet this burden, the Commissioner must come forward with sufficient evidence indicating that it i

7491 is not applicable in this case because the examination of petitioner’s 1991 return commenced before July 22, 1998, the effective date of sec. 7491. - 10 - Helvering, 290 U.S. 111, 115 (1933); Bixby v. Commissioner, 58 T.C. 757, 791 (1972). Section 6662(a) imposes a penalty of 20 percent of the portion of the underpayment of tax attributa

Section 7491 may shift the burden to the Commissioner in certain circumstances, but petitioner does not contend, and has not shown, that he has satisfied the prerequisites of section 7491. Accordingly, the burden remains with petitioner regarding any determination of a tax liability. The Commissioner bears the burden of production with respect to a

The Court is satisfied that respondent has provided sufficient evidence linking petitioner to the income underlying the statutory notice of deficiency.6 Although section 7491 may shift the burden to respondent in specified circumstances, petitioner here did not satisfy the prerequisites under section 7491(a)(1) and (2) for such a shift.

The burden of proof may shift to the Commissioner under section 7491 in certain circumstances.

In the present case, the burden does not shift with respect to any factual issue relating to petitioner’s liability for the income tax deficiency because petitioner neither alleged that section 7491 was applicable nor established that he complied with the substantiation requirements of section 7491(a), as shown below.

7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. -12- While fair market value is a question of fact to be deter

skal Enterprises Trust to $397,480 and, consequently, to reduce cost of goods sold to $347,179. OPINION Paragraph 10 of the stipulation that was filed at the time of trial set forth that “Petitioners concede that they bear the burden of proof under I.R.C. sec. 7491 on all income, expense, and deduction issues to be tried.” Petitioners also conceded the negligence penalty under section 6662 and the addition to tax for failure to file timely under section 6651(a)(1). The issues for - 6 - trial wer

The burden of proof may shift to the Commissioner under section 7491 in certain circumstances.

7491(a)(2)(A) and (B).6 The burden does not shift to respondent under section 7491, however, because we find that petitioner failed to provide credible evidence, failed to substantiate the claimed expenses, and failed to maintain adequate records.

Here, petitioner has not argued the application of section 7491 nor established that it satisfied the requirements in section 7491.

skal Enterprises Trust to $397,480 and, consequently, to reduce cost of goods sold to $347,179. OPINION Paragraph 10 of the stipulation that was filed at the time of trial set forth that “Petitioners concede that they bear the burden of proof under I.R.C. sec. 7491 on all income, expense, and deduction issues to be tried.” Petitioners also conceded the negligence penalty under section 6662 and the addition to tax for failure to file timely under section 6651(a)(1). The issues for - 6 - trial wer

Section 7491 is not applicable in this case because the audit of petitioner's returns began before July 22, 1998. An understatement is "substantial" if the amount of the understatement for the applicable year exceeds the greater of 10 percent of the tax required to be shown on the return or $5,000. Sec. 6661(b)(1)(A). Under section 6661, an "unders

7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of enactment of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. -12- While fair market value is a question of fact to be deter

or the burden to shift. It is unnecessary for us to address the parties’ disagreements and to determine whether the burden of proof has shifted because the outcome of this case is determined on the preponderance of the evidence and is unaffected by section 7491. See Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C. Memo. 2003-212; Estate of Stone v. Commissioner, T.C. Memo. 2003-309. II. Sections 2035(a) and 2036(a) The purpose of section 2036 is to include in a deceased

Discussion Burden of Proof As a preliminary matter, we note that section 7491 is applicable to this case because the examination in connection with this action was commenced after July 22, 1998, the effective date of that section.

Section 7491 is not applicable in this case because examination of petitioner’s 1996 tax return commenced prior to July 22, 1998, the effective date of section 7491. The burden of proof is on petitioner. Rule 142(a). Section 6321 imposes a lien in favor of the United States on - 4 - all property and rights to property of a person when demand for p

uction any loss from theft or casualty sustained during the taxable year. The loss is allowed only to the extent that it exceeds $100 and the net casualty loss is in excess of 10 percent of adjusted gross income. Sec. 165(h). The amount of the loss 1Sec. 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of its enactment by sec. 3001(a) of the Internal Revenue Service Restructuring and Reform Ac

7491; Rule 142(a); Higbee v. Commissioner, 116 T.C. 438 (2001). - 6 - separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and (D) there is no liability to make any such payment for any period after the deat

Discussion Because petitioner failed to meet the requirements of section 7491(a)(2), the burden of proof does not shift to respondent in this case.1 Section 183(a) generally provides that if an activity engaged in by an individual is not entered into for profit, no deduction attributable to the activity shall be allowed, except 1Sec.

7491; Rule 142(a). The first issue for decision is whether petitioner is entitled to deduct as a business expense the cost of the 2Petitioner no longer argues that the cost of the manufactured home should be included in the Schedule C cost of goods sold. Rather, in his brief he argues that he is entitled to deduct the cost of the home as a bus

Section 72(t)(2)(E) provides that the additional tax on early distributions does not apply to “distributions to an 2 The facts are not in dispute, and the issue is primarily one of law.

In certain circumstances, however, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

Section 7491 may shift the burden of proof to the Commissioner under certain circumstances. Petitioner has not established that he complied - 4 - with the requirements of section 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with respondent’s reasonable requests. Accordingly, the burden does not shift.

an from a qualified retirement plan may result in a taxable distribution. Sec. 72(p). Accordingly, a loan that constitutes a taxable distribution is subject to the 10-percent additional tax on early 2 Petitioner does not argue for the application of sec. 7491. - 5 - distributions under section 72(t). Plotkin v. Commissioner, T.C. Memo. 2001-71. The additional tax imposed by section 72(t) does not apply to certain distributions from qualified retirement plans. For example and most common, distrib

ion with petitioner. Nevertheless, petitioner placed his trust entirely with the promoters of the investment and, as discussed in detail below, he did not adequately investigate either the legitimacy of the partnerships or the implications of 2While sec. 7491 shifts the burden of production and/or burden of proof to the Commissioner in certain circumstances, this section is not applicable in this case because respondent's examination of petitioner's return did not commence after July 22, 1998. S

r of legislative grace, and petitioner bears the burden of proving that he is entitled to the deductions claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). The burden of proof has not shifted to respondent pursuant to sec. 7491 since petitioner has not complied with the requirements of sec. 7491(a)(2)(A) and (B). Higbee v. Commissioner, 116 T.C. 438 (2001). - 3 - allowance from the city for this purpose, which approximated the cost of three pairs of firefighter un

Petitioner argues that she was employed as an "investment banker" with the M-L and James companies, having the job title "financial analyst". She did not abandon her trade or business as an "investment banker" by attending Kellogg for 2 years, she 1Sec. 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of its enactment by sec. 3001(a) of the Internal Revenue Service Restructuring and Reform Ac

7491, therefore, is not applicable in this case. - 4 - a Schedule J, Farm Income Averaging, for computation of the tax. The 3 base years in the averaging computation were 1995, 1996, and 1997. Two of these years, 1995 and 1996, were years in which petitioners sustained NOLs. The NOLs for 1995 and 1996 had been carried back to prior years, and

An item of gross income shall be included in income in the taxable year when received by the taxpayer unless under the taxpayer’s method of accounting the 7 The facts are not in dispute, and the issue is essentially one of law.

Section 7491 is not applicable in this case because examination of petitioner’s 1991 tax return commenced prior to July 22, 1998, the effective date of section 7491. The burden of proof is on petitioner. - 5 - Rule 142(a). Section 6321 imposes a lien in favor of the United States on all property and rights to property of a person when demand for p

7491; Rule 142. - 8 - Commissioner, 111 T.C. 250, 255 (1998); Schoof v. Commissioner, 110 T.C. 1, 11 (1998); Clark v. Commissioner, 101 T.C. 215, 224- 225 (1993); Swihart v. Commisioner, T.C. Memo. 1998-407; Pulliam v. Commissioner, T.C. Memo. 1996-354; Roundy v. Commissioner, T.C. Memo. 1995-298, affd. 122 F.3d 835 (9th Cir. 1997). The expli

ndent, however, allowed an additional $622 expense deduction for mortgage interest paid on petitioners' rental property. Discussion Under section 7491(a)(1),3 the burden of proof may shift to the Commissioner. Because petitioners failed to meet the 3Sec. 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of its enactment by sec. 3001(a) of the Internal Revenue Service Restructuring and Reform Ac

Gallardo, disallowed the claimed earned income and child care credits, and made a computational adjustment reducing the section 6428 rate reduction credit from $465 to $300. In his petition to this Court, petitioner challenges these adjustments.3 3 Sec. 7491, in some instances, places the burden of proof on respondent. However, under sec. 7491(a)(2)(A) and (B), for the burden to shift, the taxpayer must comply with the substantiation and record-keeping requirements of the Internal Revenue Code.

Under section 7491, the burden of proof with respect to factual issues relevant to ascertaining the tax liability of the taxpayer may shift to the Commissioner in certain circumstances. See Prince v. Commissioner, T.C. Memo. 2003-247. The issues in these cases are questions of law, and the Court decides the issues without regard to the burden of proof. D

7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, was enacted. Although the examinations for these cases began on Aug. 5, 1999, for

Petitioner has not alleged or shown that section 7491 is applicable in this case.

There is no dispute that petitioner's child is a "dependent" as defined in section 152 and the child received, during the year at issue, over half of his support from his parents.

rmers' Loan and Trust Co., 158 U.S. 601 (1895) it had previously found the taxing of income from professions, trades, employments or vocations to be constitutional in the form of an excise tax. In light of the [S]ixteenth [A]mendment, however, all 2Sec. 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of its enactment by sec. 3001(a) of the Internal Revenue Service Restructuring and Reform Act

Section 7491, effective for court proceedings that arise in connection with examinations commencing after July 22, 3 Hereinafter, for convenience, we adopt the terminology of the settlement agreement and refer to Massachusetts Mutual Life Insurance Company as the Company. - 6 - 1998, however, may operate in specified circumstances to place the bur

Under section 7491, the burden of proof with respect to factual issues relevant to ascertaining the tax liability of the taxpayer may shift to the Commissioner in certain circumstances. See Prince v. Commissioner, T.C. Memo. 2003-247. The issues in these cases are questions of law, and the Court decides the issues without regard to the burden of proof. D

Although section 7491 may shift the burden to respondent in specified circumstances, petitioner here did not satisfy the prerequisites under section 7491(a)(1) and (2) for such a shift.

The parties do not cite section 7491, and no claim is made herein that the burden of proof should be shifted to respondent.

988)). The Commissioner's decision to impose the negligence penalty is presumptively correct.6 Rule 142(a); Anderson v. Commissioner, supra at 1271. A taxpayer has the burden of proving that respondent's determination is erroneous and that he 6While sec. 7491 shifts the burden of production and/or burden of proof to the Commissioner in certain circumstances, this section is not applicable in this case because respondent's examination of petitioners' return did not commence after July 22, 1998. S

Section 7491 may oper te, however, in specified circumstances to place the burden on he Commissioner. Séction 7491 is applicable to court proceedings that arise in connection with examinations commencing after Jtly 22, 1998, and reads in pertinent part: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Prodt ces Credible Evidence . - -

of its sale, a loss sustained on the sale of the property shall be allowed as a deduction under section 165(a). [Sec. 1.165-9(b)(1), Income Tax Regs.] 3 Petitioners do not assert that the burden of proof in this case should shift to respondent under sec. 7491. - 8 - Although inconsistent with previous statements, including their testimony at trial, petitioners now argue that in 1992 they purchased the property with the intent to build a residence thereon not for them to live in but for them to r

Schedule K-1 that was issued by RCR #1 to Mr. Barnes in 1981. Petitioner argues that this document shows that she was not an investor in the partnership. Based on the record as a whole, however, we decline to give the Schedule K-1 such significant asec. 7491, as currently in effect, shifts the burden of production and/or proof to the Commissioner in certain situations. However, this section is not applicable in this case because the underlying examination did not commence after July 22, 1998. I

or purposes of section 6212(b)(2)) because it was not a “joint notice” issued to both petitioner and Mr. Quarterman. Although petitioner and 5 Because we base our finding upon a preponderance of the evidence, assignment of the burden of proof under sec. 7491 is unnecessary. See FRCG Inv., LLC v. Commissioner, T.C. Memo. 2002-276, affd. on this issue 89 Fed. Appx. 656 (9th Cir. 2004); Polack v. Commissioner, T.C. Memo. 2002-145 n.7, affd. on this issue 366 F.3d 608, 613 (8th Cir. 2004). 6 Petitio

perts from Alaska calculated a total date-of-death value of $1,749,709 ($3.59 per share) for the estate's 20-percent common stock interest in TPC. In arriving at this number, the estate's experts concluded that no companies existed that were 6 Under sec. 7491, where a taxpayer produces credible evidence and otherwise satisfies the requirements of.sec. 7491(a)(2), the burden of proof with respect to a factual issue relevant to ascertaining the taxpayer's tax liability (such as the fair market val

around May 1, 1996, as vending machines. Petitioner does not dispute that respondent’s determination in the notice with respect to the $16,450 of unreported income for 1996 relates to the sale of the arcade games. 10Petitioner does not contend that sec. 7491 is applicable in this case. Even if petitioner had advanced such a contention, he has not established that he has complied with the applicable requirements of sec. 7491(a)(2). Under the circumstances pre- sented in this case, we conclude (1

OPINION Respondent concedes that section 7491 is applicable in the instant case.

[Abraham] relinquishment of his right to share in Mrs. Abraham’s estate as consideration for purposes of I.R.C. § 2043, and subtracted it from the $830,000 date of death net asset value of the partnership. 21Neither party argued the applicability of sec. 7491. - 16 - if “it either alters the original deficiency or requires the presentation of different evidence.” Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500, 507 (1989). The estate argues on brief that the burden should shift to respondent b

is presumptively correct.5 Rule 142(a); Collins v. Commissioner, 857 F.2d 1383, 1386 (9th Cir. 1988), affg. Dister v. Commissioner, T.C. Memo. 1987-217; Hansen v. Commissioner, 820 F.2d 1464, 1469 (9th Cir. 1987). A taxpayer has the burden of 5While sec. 7491 shifts the burden of production and/or burden of proof to the Commissioner in certain circumstances, this section is not applicable in this case because respondent’s examination of petitioners’ return did not commence after July 22, 1998. S

e in deficiency that is pleaded in his answer. Rule 142(a). Because our resolution of the issues in this case does not hinge on which party bears the burden of proof, we need not further address the application of Rule 142(a) or the applicability of sec. 7491. 3 Sec. 152(e)(1) treats a child as receiving over half his support from his custodial parent, if his parents live apart at all times during the last 6 months of the calendar year and provide over half the child’s support for that year. Eve

5,555 early distribution that petitioner received from the plan.2 To reflect the foregoing, Decision will be entered for respondent. 2 Petitioners do not argue that the burden of proof on the issue in this case should be shifted to respondent under sec. 7491. In any event, we do not decide the issue in this case on the burden of proof. Also, regardless of whether the $5,555 additional tax under sec. 72(t) would be considered an “additional amount” under sec. 7491(c) and regardless of whether the

Section 7491 does not affect the outcome because petitioners' liability for the deficiencies is decided on the preponderance of the evidence. During taxable years 1994 and 1995, petitioner Keith Scherbart (petitioner) was a member of Minnesota Corn Processors (MCP). MCP is an agricultural cooperative organized under the laws of the State of Minneso

The burden of proof in these cases has not shifted to respondent under section 7491 because petitioners failed to maintain adequate books and records and to cooperate with reasonable requests for information and documents.

tion of fact, and the trier of fact must weigh all relevant evidence to draw the appropriate inferences. Commissioner v. Scottish Am. Inv. Co., 323 U.S. 119, 123-125 (1944); Helvering v. Natl. Grocery Co., 304 U.S. 282, 29 The estate has not raised sec. 7491, which would shift the burden of proof under certain circumstances. Accordingly, we deem that issue waived. - 56 - 294-295 (1938); Anderson v. Commissioner, 250 F.2d 242, 249 (5th Cir. 1957), affg. in part and remanding in part on other grou

The burden of proof in these cases has not shifted to respondent under section 7491 because petitioners failed to maintain adequate books and records and to cooperate with reasonable requests for information and documents.

72(q);3 and (3) whether petitioners are liable for the 20-percent accuracy-related penalty for understatement of tax pursuant to section 6662(a). The Court decides the issues in this case on the preponderance of evidence in the record. Rule 142(a); sec. 7491. Some of the facts were stipulated, and those facts, with the annexed exhibits, are so found and are incorporated herein by reference. At the time the petition was filed, petitioners' legal residence was Caldwell, Texas. Anthony Sadberry (p

Section 7491 Alternatively, the burden of proof may shift to the Commissioner under section 7491(a). However, because petitioner failed to comply with the substantiation and record-keeping requirements of section 7491(a)(2) and to introduce credible evidence within the meaning of section 7491(a)(1), section 7491 does not place the burden of proof o

While section 7491 may shift the burden of production and/or burden of proof to the Commissioner in certain circumstances, this section is not applicable in these cases because respondent’s examination of petitioners’ returns did not commence after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 300

While section 7491 may shift the burden of production and/or burden of proof to the Commissioner in certain circumstances, this section is not applicable in these cases because respondent’s examination of petitioners’ returns did not commence after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 300

However, in certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

a subsidiary company, the business activities of the subsidiary may 5(...continued) burden of proof as to whether a corporation constitutes a mere holding company for purposes of the accumulated earnings tax may be available under the provisions of sec. 7491. The parties herein, however, do not request any such shift in the burden of proof as to the issue of petitioner’s status as a mere holding company. - 19 - be attributed to the parent corporation. The relevant language of section 1.537-3(b)

7491, concerning burden of proof, has no bearing on this case. 3 A deficiency exists because the erroneously issued refund is considered a rebate under sec. 6211(a)(2). Laughlin v. Commissioner, T.C. Memo. 1993-122. - 3 - refund of overpayments, see sec. 6402(a),4 we are unaware of any provision that authorizes him to make gifts. Furthermore,

ate that payments commence. IRS Notice 89-25, Q&A-12, 1989-1 C.B. supra at 666. The parties agree that the fixed amortization method provided in IRS Notice 89-25 is a permissible way to calculate a series of substantially equal periodic payments.6 5 Sec. 7491, under certain circumstances, places the burden of proof on respondent with respect to a taxpayer’s liability for taxes in court proceedings arising in connection with examinations commencing after July 22, 1998. In this case, the examinati

to file a timely 1995 return. Discussion According to petitioners, Turtle performance is, and was at all relevant times, a trade or business. Therefore, petitioners argue, the expenses and/or losses incurred in that activity are 4 The provisions of sec. 7491 are therefore not applicable. - 9 - deductible under section 162 and/or section 165.5 Respondent argues that Turtle Performance was not a trade or business during any of the years in issue because petitioner did not engage in that activity

Respondent disagrees and argues that petitioner bears the burden of proof because petitioner failed to introduce credible evidence with respect to any factual issue relevant to ascertaining his 1998 Federal income tax liability and further failed to comply with the substantiation and record-keeping requirements of the Internal Revenue Co

is monthly gross income from Grand Video was $7,000. Revenue Agent Keinle (Agent Keinle) conducted the examination of petitioner’s returns. During the course of the examination, petitioner provided her with business and personal 1 The provisions of sec. 7491 are not applicable to this proceeding. - 11 - expense records, the cash journal, asset records, and personal and business bank records. Agent Keinle concluded that petitioner’s income for each year in issue could not be accurately determined

The burden of proof may shift to the Commissioner under section 7491 if the taxpayer establishes compliance with the requirements of section 7491(a)(2)(A) and (B) by substantiating items, maintaining required records, and fully cooperating with the Secretary’s reasonable requests.

espondent's determinations disallowing all or part of the deductions claimed on the return were for lack of substantiation. Petitioners kept no books and records and produced only minimal evidence at trial in support of some of their deductions.2 2 Sec. 7491, under certain circumstances, places the burden of proof on the Commissioner in connection with proceedings arising from the examination of returns that commenced after July 22, 1998. The record does not show when the examination of petition

the understatement for which the taxpayer had substantial authority, or the amount for which the taxpayer disclosed relevant facts and had a 11 As previously noted, no question has been raised with respect to the burden of proof or production under sec. 7491. - 30 - reasonable basis to support the tax treatment. Sec. 6662(d)(2)(B). For the purposes of this section, a taxpayer is negligent when he or she fails “to do what a reasonable and ordinarily prudent person would do under the circumstance

v. United States, 348 U.S. 121 (1954); Ferenc v. Commissioner, T.C. Memo. 1991-617, affd. without published opinion 9 F.3d 120 (11th Cir. 1993); sec. 1.6001-1(a), Income Tax Regs. 1 Because the examination of petitioner began prior to July 22, 1998, sec. 7491 burden of proof and production provisions do not apply. See sec. 7491. - 7 - Testimony of Kenneth R. Chiate Mr. Chiate is president and sole shareholder of Moonshadows. He described the restaurant and how it operated. There is a bar in Moon

Section 7491 does not change the burden of proof where a taxpayer has failed to substantiate deductions. Higbee v. Commissioner, 116 T.C. 438 (2001). Deductions are strictly a matter of legislative grace. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Taxpayers must substantiate c

7491; Rule 142(a); Higbee v. Commissioner, 116 T.C. 438 (2001). - 8 - A. Statutory Framework The starting point for the interpretation of a statute is the language itself. Consumer Prod. Safety Comm. v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980); see also United States v. Bryant, 671 F.2d 450, 453 (11th Cir. 1982); Warbelow’s Air Ventures,

7491, under certain circumstances, places the burden of proof on respondent with respect to a taxpayer’s liability for taxes in court proceedings arising in connection with examinations commencing after July 22, 1998. The examination of petitioner’s return commenced after July 22, 1998. However, the parties did not address the applicability of

7491; Rule 142(a); Higbee v. Commissioner, 116 T.C. 438 (2001). - 5 - behalf of) a spouse under a divorce or separation instrument, (B) the divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under section 215, (C) in the case

h a conclusion is not entirely convincing. Section 151(c) allows taxpayers to deduct an annual exemption amount for each dependent as defined in section 152. Under section 152(a), the term "dependent" means certain 2 At trial, respondent agreed that sec. 7491 is applicable in this case because the audit of petitioner's Federal income tax return commenced after July 22, 1998. Sec. 7491, in certain instances, shifts the burden of proof from petitioner to respondent. Rule 142(a). The Court conclude

4(a), Income Tax Regs. Respondent bears the burden of production with respect to petitioner’s liability for the accuracy-related penalty under section 6662(c) because the examination in this case commenced after July 22, 1998, the effective date of section 7491. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. Petitioner erroneously failed to include in his gross income the $1,568,087 qui tam payment. Thus, respondent has met the burden

7491, concerning burden of proof, has no bearing on this case. - 3 - timely file his 1992 return, and respondent credited the $7,000 payment to an “excess collections” account. On May 13, 1998, petitioner filed his 1991, 1992, and 1993 returns. Respondent applied $2,658 of the $7,000 payment to petitioner’s 1992 tax liability, and the remaini

luded in the definition of a dependent. Sec. 152(a)(6). The sole issue with regard to the dependency exemption deductions claimed by petitioner is whether petitioner has established that he provided more than half of the support for the children.2 2 Sec. 7491 dealing with the burden of proof has no application to this case because petitioner has not satisfied the requirements of sec. 7491(a). - 4 - It is axiomatic that in order to establish that petitioner provided more than half of the support

account. Petitioner also provided a check register for the joint account, but the register included only entries made from April through December 1992. The revenue agent concluded that petitioners’ income could not be determined from the books and 1 Sec. 7491 is therefore inapplicable. - 5 - records with which she was provided. She decided to reconstruct petitioners’ income using the cash T-account method and computed petitioners’ unreported income for each year in issue as follows: Year Income

allows gambling losses, but only to the extent of gambling winnings. Petitioner did not claim any gambling losses. No question has been raised in this case with respect to the burden of production under section 6201(d) or the burden of proof under section 7491. Petitioner contends that he did not win the $5,466 reported on the Forms W-2G. In his petition, petitioner asserts: “I do not gamble, therefore how could I win this money?” At trial, petitioner testified: “I gamble a little bit, like an

7491; Rule 142(a)(2). We assume (without deciding) that the conditions necessary to shift the burden to respondent have been satisfied. - 20 - assignees became class B limited partners). The parties’ experts agree that, if the gifted interest does not include all of petitioners’ rights as class B limited partners, the fair market value of the

7491; Rule 142(a); Higbee v. Commissioner, 116 T.C. 438 (2001). 5 As relevant to the present case, a “qualified retirement plan” includes a qualified pension or profit sharing plan under sec. 401(a). Sec. 4974(c)(1). - 6 - First Home Purchase Exception Section 72(t)(2)(F) provides, in relevant part, an exception to the 10-percent additional t

7491, under certain circumstances, places the burden of production on the Commissioner with respect to a taxpayer’s liability for taxes, penalties, and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. In this case, petitioner does not contend, nor is there evidence, that the examinat

Section 7491 does not affect the burden of proof where the taxpayer has not substantiated deductions. Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). The deduction was disallowed because petitioners had not substantiated the - 8 - expenditure. Petitioners presented no evidence from which the Court could conclude that respondent’s determinati

Petitioners have neither alleged that section 7491 is applicable to this case nor established that they have complied with the requirements of section 7491(a)(2)(A) and (B) to substantiate items, to maintain required records, and to cooperate fully with reasonable requests of the Commissioner.

The burden of proof may shift to the Commissioner under section 7491 if the taxpayer establishes that he introduced credible evidence and complied with the requirements of section 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with the Secretary’s reasonable requests.

7491, concerning the burden of proof, is not applicable here because petitioners have not satisfied the substantiation requirement. Sec. 7491(a)(2)(A). 4 Petitioner also introduced a copy of a hotel receipt from a hotel in Alpharetta, Georgia, with the written notation “Show Atlanta (16-18) - May - (Took vacation from work to go)”. The notatio

As there are no factual issues in dispute in this case, section 7491 is not implicated.

o determine the correct tax liability. Sec. 6001; Higbee v. Commissioner, 116 T.C. 438 (2001); sec. 1.6001-1(a), Income Tax Regs. The taxpayer must substantiate both the amount and purpose of the claimed deductions. Higbee v. Commissioner, supra.2 2 Sec. 7491, under certain circumstances, places the burden of proof on the Commissioner in connection with proceedings arising from the examination of returns that commenced after July 22, 1998. Although it is obvious that petitioner's 2000 return was

INION THORNTON, Judge: Respondent determined the following deficiencies and additions to tax in petitioner's Federal income taxes:¹ ¹ All section references are to the Internal Revenue Code in effect for the years at issue (except that references to sec. 7491 are to that section as added to the Internal Revenue Code by the Internal Revenue Service Restructuring and Reform Act of 1998 (continued...) SEPNßt DEC 2 2 2003 I - 2 - Additions to Tax Year Deficiency Sec. 6651(a)(1) Sec. 6654 1996 $4,195

s to reduce his debt. Although he reinvested some of the funds, petitioner did not roll over any of the distributions into another qualified retirement plan. Indeed, petitioner stated that he no longer had any IRAs. The evidence shows that none of 3 Sec. 7491 is effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioner does not contend that sec. 7491 is applicable to his case. Further, the resolution of this case does not depend on which p

In addition, petitioner stored equipment used in his activity at his home.2 Section 280A(a) provides that no deduction otherwise allowable shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.

bankruptcy proceeding. Petitioners' contentions are misplaced. The issue presented in the present case concerns an action for redetermination of a deficiency for the taxable year 1999, which is a postbankruptcy Federal tax liability, and not the 6 sec 7491 does. not apply in this case to shift the burden sec 1 was appl cable nor es ab i hed that they 11y complied with the requirements of sec. 7491(a) (2) . Sec. 451(a) requires- e taxab e year of receipt unless the taxpayer' s gross income inod

328 (1995). Taxpayers generally bear the burden of proving that they are entitled to exclude amounts claimed. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111 (1933). Petitioner does not contend that the burden of proof is on respondent under - 4 - section 7491. Section 104(a)(3) excludes from gross income amounts received by an employee "through accident or health insurance * * * for personal injuries or sickness" except to the extent such amounts are (A) attributable to contributions made by t

ace and that the burden of clearly showing the right to the claimed deduction is on the taxpayer.”4 INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); see also Rule 142(a). Therefore, 4 The examination commenced before July 22, 1998. Accordingly sec. 7491 burden of proof and production standards are not applicable. See sec. 7491. - 8 - petitioner must establish that his Sherman Oaks Property rent payments were incurred in carrying on his trade or business. Petitioner has not shown that he ev

Petitioners have neither alleged that section 7491 is applicable to this case nor established that they have complied with the requirements of section 7491(a)(2)(A) and 2 But for this general description of the settlement, the record does not provide any other details as to the terms or circumstances of the settlement.

1981 (ERTA), Pub. L. 97-34, 95 Stat. 172, modified the rules for the marital deduction relating to terminable interests. ERTA sec. 403(d)(1), 95 Stat. 302, added section 2056(b)(7), which allows a marital deduction 5(...continued) In the context of sec. 7491, by failing to raise the sec. 7491(a) argument at or before trial, petitioner prejudiced respondent’s ability to present evidence that petitioner did not meet the requirements of sec. 7491(a)--e.g., that petitioner did not comply with the su

7491 is not applicable to this case because the examination began before the statute's effective date. Thus, petitioner had the burden of proof. Welch v. Helvering, 290 U.S. 111, 115 (1933). - 11 - Contentions we have not addressed are irrelevant, moot, or meritless. To reflect the foregoing, An appropriate order will be issued.

- 8 - In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on the Commissioner.

Rule 142(a)(2) references the applicability of section 7491, which shifts the burden of proof to the Secretary under certain specified circumstances.

Section 7491, effective for court proceedings that arise in connection with examinations commencing after July 22, 1998, may operate, however, in specified circumstances to place the burden on the Commissioner. Internal Revenue Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. With respect to factual issues and subje

Section 7491 is effective with respect to examinations commenced after July 22, 1998. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. Although the relevant examination was conducted after July 22, 1998, petitioners failed to meet the requirements of section 7491(a)(1) and (2) in that

petitioner is entitled to certain deductions claimed on Schedules C; (5) whether petitioners are liable for accuracy- related penalties for negligence under section 6662(b)(1); and (6) whether the burden of proof is on or shifted to respondent under section 7491. FINDINGS OF FACT3 At the time their petition was filed, petitioners were husband and wife and resided at Huntington Beach, California. Petitioner was a member of the International Brotherhood of Teamsters, Bakery Drivers Local Union No.

ecause the taxpayer’s records have been lost, stolen, destroyed, or otherwise made unavailable to the taxpayer. Malinowski v. Commissioner, 71 T.C. 1120, 1124-1125 (1979); Villarreal v. Commissioner, T.C. Memo. 1998-420 (“A taxpayer’s inability to 5 Sec. 7491 is not applicable to this proceeding. - 10 - produce records does not relieve the taxpayer of the burden of proof.”). Certain expenses, e.g., interest, real estate taxes, items paid by check or credit card, etc., can be substantiated by rec

Although section 7491 may shift the burden to the Commissioner in certain circumstances, the section is applicable only to court proceedings that arise in connection with examinations commencing after July 22, 1998.

Section 7491 does not define the term “credible evidence”. The legislative history underlying the enactment of section 7491 contains the explanation that Credible evidence is the quality of evidence which, after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted (with

7491; Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(a), 112 Stat. 726 (providing that July 22, 1998, is the effective date of sec. 7491). In any event, resolution of this case does not hinge on placement of the burden of proof. - 9 - creditor relationship. Litton Bus. Sys., Inc. v. Commissioner, 61

ounts with his business associates. Although petitioner and his wife were listed as the sole account holders, petitioner contends that the bank accounts did 7Respondent’s examination in this case commenced before July 22, 1998, the effective date of sec. 7491. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. - 8 - not belong to him exclusively. Petitioner insists that he and his partners, Mr. Ridge8 and Mr. Dill, shared the bank acc

Although section 7491 may shift the burden to the Commissioner in certain circumstances, the section is applicable only to court proceedings that arise in connection with examinations commencing after July 22, 1998.

Section 7491 shifts to the -6- Commissioner the burden of proof as to determined deficiencies when the taxpayer establishes that he or she met certain requirements. Petitioner has not established that he has met those requirements. Section 7491(c) requires that the Commissioner bear the burden of production as to the additions to tax and penalties

the understatement for which the taxpayer had substantial authority, or the amount for which the taxpayer disclosed relevant facts and had a 11 As previously noted, no question has been raised with respect to the burden of proof or production under sec. 7491. - 30 - reasonable basis to support the tax treatment. Sec. 6662(d)(2)(B). For the purposes of this section, a taxpayer is negligent when he or she fails “to do what a reasonable and ordinarily prudent person would do under the circumstance

7491; Rule 142(a)(2). We assume (without deciding) that the conditions necessary to shift the burden to respondent have been satisfied. For purposes of this report, we use the term “assignee interest” (assignee interest) to signify the interest held by an assignee of a partnership interest who has not been admitted as a partner in the partners

Petitioners have neither alleged that section 7491 is applicable to this case nor established that they have complied with the requirements of section 7491(a)(2)(A) and (B) to substantiate items, to maintain required records, and to cooperate fully with reasonable requests of respondent.

The burden of proof may shift to the Commissioner under section 7491 if the taxpayer establishes compliance with the requirements of section 7491(a)(2)(A) and (B) by substantiating items, maintaining required records, and fully cooperating with the Secretary’s reasonable requests.

ted income amounts of $1,503 and $748, consisting, respectively, of a State income tax refund and unemployment compensation benefits. 3 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec. 7491, which, under certain circumstances, places the burden of proof on the Secretary with respect to any factual issue relevant to a taxpayer's liability for taxes in court proceedings arising in connection with examinations commencing after Ju

Section 7491 does not change the burden of proof where a taxpayer has failed to substantiate deductions. Higbee v. Commissioner, 116 T.C. 438 (2001). Moreover, taxpayers must keep sufficient records to establish the amounts of the deductions. Meneguzzo v. Commissioner, 43 T.C. 824, 831 (1965); sec. 1.6001-1(a), Income Tax Regs. Generally, except as

o section 469(c)(7). Respondent further maintains that petitioners did not elect to treat the rental properties as one activity under section 469(c)(7)(A), and, therefore, Mrs. Jahina must qualify as a real estate professional with respect to each 3 Sec. 7491, in certain instances, places the burden of proof on respondent with respect to examinations of returns commencing after July 22, 1998. There is no evidence in the record regarding the date the examination of petitioners’ returns commenced.

The burden of proof may shift to the Commissioner under section 7491 if the taxpayer establishes that he complied with the requirements of section 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with the Secretary’s reasonable requests.

ncluding meals and lodging while away from home, as well as in the case of entertainment expenses and expenses with respect to listed 3 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec. 7491, which, under certain circumstances, places the burden of production on the Secretary with respect to a taxpayer’s liability for taxes, penalties, and additions to tax in court proceedings arising in connection with examinations commencing

7491 does not shift the burden of proof to respondent with respect to the underpayments of tax because petitioners have neither alleged that sec. 7491 is applicable nor established that they complied with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with respondent’s reaso

95 (1940); ASAT, Inc. v. Commissioner, 108 T.C. 147, 174 (1997). Necessary expenses are 4Respondent submits that the examination of petitioners' 1995 and 1996 returns began on Mar. 21, 1997. Petitioners do not raise an issue as to the application of sec. 7491, and we find that Code section inapplicable to this case. SRespondent suggests that the fees were essentially capital contributions from Mr. Stewart to the corporation. the years at issue. Mr. Stewart has not shown that he performed those s

The burden of proving facts relevant to the deficiency may shift to the Commissioner under section 7491 if the taxpayer establishes compliance with the requirements of section 7491(a)(2)(A) and (B) by substantiating items, maintaining required records, and fully cooperating with the Secretary’s reasonable requests.

Section 7491 is not applicable in the instant case because the examination commenced before July 22, 1998. Petitioner bears the burden of proof. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933). We note that this Court has jurisdiction to determine - 7 - whether the Secretary’s determination of worker classification is correct and to determine

e Indian reservation itself, not to non-Indian land adjacent to an Indian reservation. Respondent contends that Congress provided the IEC to encourage private businesses to locate on Indian reservations in order to employ Native Americans who live 8 Sec. 7491 is effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioner does not contend that sec. 7491 is applicable to its case. Further, we do not find that the resolution of this case depend

1402(a)(3) provides that, in computing a taxpayer’s net earnings from self-employment, (3) there shall be excluded any gain or loss-– (A) which is considered as gain or loss from the sale or exchange of a capital asset, * * * * * * * (C) from the sale, exchange, involuntary conversion, or other disposition or property if such property is neither-– (i) stock in trade or other property of a kind which would prope

The burden of proving facts relevant to the deficiency may shift to the Commissioner under section 7491 if the taxpayer establishes compliance with the requirements of section 7491(a)(2)(A) and (B) by substantiating items, maintaining required records, and fully cooperating with the Secretary’s reasonable requests.

Section 7491 was enacted by section 3001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, 112 Stat. 685, 726. As so added, section 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of the enactme

- cancelled our life insurance (including irreplaceable term life), cancelled my lifetime employment contract, said our savings (held 4 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec. 7491, which, under certain circumstances, places the burden of proof on the Secretary with respect to factual issues relevant to a taxpayer's liability for taxes and the burden of production on the Secretary with respect to a taxpayer’s liabilit

7491 does not shift the burden of proof to respondent with respect to the underpayments of tax because petitioners have neither alleged that sec. 7491 is applicable nor established that they complied with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with respondent’s reaso

taxpayer under the age of 19 (24 if the child is a student). The exemption amount for 1997 is $2,650. Rev. Proc. 96-59, 1996-2 2The Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 685, 726, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491 is applicable to court proceedings arising in connection with examinations commenced after July 22, 1998. Petitioner does not contend that sec. 7491 is a

Because the burden of proof does not affect the result with respect to the NOL issue, we find that section 7491 has no bearing on the determination of that issue.

Section 7491, enacted as part of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, which can shift the burden of proof from the taxpayer to the Commissioner, is not applicable to this case because petitioners’ audit commenced in April 1998, which predates July 22, 1998, the effective date

7491, concerning burden of proof, has no bearing on this case. - 3 - During 1998, petitioner’s daughter did not live with him for more than half of the taxable year, and petitioner’s former wife had custody of the child. Petitioner made all child support payments as ordered by the Decree. On his 1998 Federal income tax return, petitioner clai

egs. The term “support” includes food, shelter, clothing, medical and dental care, education, and the like. Sec. 1.152-1(a)(2)(i), Income Tax Regs. The total amount of support for each of the 4 The burden of proof may shift to the Commissioner under sec. 7491 if the taxpayer establishes that he introduced credible evidence and complied with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with the Secretary’s reasonable requests

1642, 1650 (1970) (although an automobile allowance of 10 cents per mile under an elective 29 In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, sec. 7491 places the burden of proof on the Commissioner. See sec. 7491(a); Rule 142(a)(2). Sec. 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. See Internal Revenue Service

joint return was filed for that year, petitioner is not entitled to the earned income credit. Respondent is sustained on this issue.2 2 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec. 7491, which, under certain circumstances, places the burden of proof on the Secretary with respect to any factual issue relevant to ascertaining a taxpayer’s liability for taxes in court proceedings arising in connection with examinations commen

be substantiated, and taxpayers are required to maintain records sufficient therefor. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), affd. 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.1 When a taxpayer adequately 1 Sec. 7491, effective for court proceedings which arise in connection with examinations commencing after July 22, 1998, can operate in specified circumstances to place the burden of proof on the Commissioner if the taxpayer introduces credible evidenc

7491, concerning burden of proof, has no bearing on this case. - 3 - In preparing their 1999 joint Federal income tax return, petitioners reported $93,482 of taxable wages. Petitioners excluded $10,170, representing the amount petitioner received from the County of Los Angeles for unused vacation and sick leave.4 Section 61 provides in part:

7491, under certain circumstances, places the burden of production on the Secretary with respect to a taxpayer's liability for taxes, penalties, and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. The record is unclear as to whether the examination of petitioner's returns commenced

7491, concerning burden of proof, has no bearing on the issues at hand. - 3 - Petitioner alleges that he used $19,000 from the distributions to pay the taxes resulting from the IRA distributions and the balance of the funds was used to finance petitioner’s business activities. Petitioners did not report the $42,870 distributions on their join

7491, concerning burden of proof, has no bearing on this case. - 4 - stated that “(Use of this form will result in a distribution reportable to the IRS [Internal Revenue Service] on Form 1099-R [Distributions From Pensions, Annuities, Retirement or Profit- Sharing Plans, IRAs, Insurance Contracts, etc.]).” On September 14, 1998, petitioner ex

. Any such estimate, however, must have a reasonable evidentiary basis. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). Without 4 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec. 7491, which, under certain circumstances, places the burden of production on the Secretary with respect to a taxpayer’s liability for taxes, penalties, and additions to tax in court proceedings arising in connection with examinations commencing

7491, concerning burden of proof, has no bearing on this issue. - 3 - The parties further agree that effective with the August 1984 payment, the wife shall be owner of, and receive, one-half of husband’s disposable retired or retainer pay, [i.e.], during the joint lives of the parties, the husband and wife shall each receive one-half of husba

Because the burden of proof does not affect the result in this case, we find that section 7491 has no bearing on the determination of the legal issues before us.

rules or regulations. For purposes of section 6662(a), negligence constitutes a failure to make a reasonable attempt to comply with the Internal Revenue Code. Sec. 6662(c). 2 Petitioners make no argument that respondent has the burden of proof under sec. 7491. - 13 - Petitioners cite Jack’s Maint. Contractors, Inc. v. Commissioner, T.C. Memo. 1981-349, revd. per curiam 703 F.2d 154 (5th Cir. 1983), and Hood v. Commissioner, 115 T.C. 172 (2000), as substantial authority for petitioners’ treatment

Vortex bears the burden of proof on this issue.15 Rule 142(a); Lee v. Commissioner, 227 F.2d 181, 184 (5th Cir. 1955), affg. a Memorandum Opinion of this Court; BJR Corp. v. Commissioner, 67 T.C. 111, 131 (1976). 15The burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726. - 27 - Section 6651(a) authorizes the Commissione

of occasional profits, if any, from the 20 Cf. sec. 7491(a), effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend that their examination began after July 22, 1998, or that sec. 7491 is applicable to their case. - 17 - activity; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation. This list is nonexclusive, and the number of factors for or against the taxpayer is not necessarily

7491, Congress requires the burden of proof to be placed on the Commissioner, subject to certain limitations, where a taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for tax. In the instant case, petitioners have not raised the application of this provision. Further, the re

In certain circumstances, if the taxpayer “introduces credible evidence with respect to any factual issue relevant to ascertaining” the proper tax liability, section 7491 places the burden of proof on respondent with respect to such issue.

7491, Congress requires the burden of proof to be placed on the Commissioner, subject to certain limitations, where a taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for tax. In the instant case, petitioners have not raised the application of this provision or otherwise arg

they engaged in the activity with the intent of making a profit.2 Rule 142(a). Section 1.183-2(b), Income Tax Regs., contains a nonexclusive list of factors to be used in determining whether an 2 We do not find that the burden shifting provisions of sec. 7491 apply. - 8 - activity is engaged in for profit. These factors are: (1) The manner in which the taxpayers carry on the activity; (2) the expertise of the taxpayers or their advisers; (3) the time and effort expended by the taxpayers in carry

ecord in which entries of expenses are recorded at or near the time of the expense. Id. In addition, petitioner must produce documentary evidence such as receipts or paid bills. Sec. 1.274- 2 Because the examination commenced prior to July 22, 1998, sec. 7491 burden of proof and production standards are not applicable. See sec. 7491. - 6 - 5T(c)(2)(i) through (iii), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). Petitioner argues that her claimed deductions have been substantiate

7491 is not applicable to this case. - 7 - without published opinion 827 F.2d 774 (11th Cir. 1987). Petitioners deposited millions of dollars in their bank accounts while reporting losses from cash-intensive businesses. We conclude that respondent’s deficiency determination was not arbitrary. Accordingly, the presumption of correctness applie

nt. The last issue for decision is whether petitioners are liable for an accuracy-related penalty pursuant to section 6662(a) for the year in issue. Section 6662(a) imposes a penalty 3 Respondent does not bear any burden of proof or production under sec. 7491 because the examination commenced prior to July 22, 1998. - 8 - of 20 percent of the portion of the underpayment which is attributable to negligence or disregard of rules or regulations. Sec. 6662(b)(1). Negligence is the "'lack of due care

ssioner, 114 T.C. 458 (2000). On the other hand, no current deduction is allowed for capital 4In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, sec. 7491 places the burden of proof on the Secretary. Sec. 7491(a). Sec. 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. Internal Revenue Service Restructuring and Reform Ac

7491, concerning burden of proof, has no bearing on this issue. - 6 - Section 408(d) generally sets forth the tax treatment of distributions from IRA's as follows: . SEC. 408(d) Tax Treatment of Distributions.-- (1) In general.--Except as otherwise provided in this subsection, any amount paid or distributed out of an individual retirement pla

. Vortex bears the burden of proof on this issue." Rule 142(a); Lee v. Commissioner, 227 F.2d 181, 184 (5th Cir. 1955), affg. a Memorandum Opinion of this Court; BJR Corp. v. Commissioner, 67 T.C. 111, 131 (1976). "The burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726. - 27 - Section 6651(a) authorizes the Commissioner

that are earned; (8) the financial status of the taxpayer; and (9) the elements of personal pleasure or recreation involved in the activity. Sec. 1.183-2(b), Income Tax Regs. Upon review of these factors, we conclude that section 183 does not limit 2Sec. 7491 is not applicable to this case. - 6 - petitioners’ deductions because petitioners engaged in their horse breeding activity to make a profit. A. Businesslike Manner Petitioners invested significantly in advertising and promotions, attended e

of occasional profits, if any, from the 20 Cf. sec. 7491(a), effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend that their examination began after July 22, 1998, or that sec. 7491 is applicable to their case. - 17 - activity; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation. This list is nonexclusive, and the number of factors for or against the taxpayer is not necessarily

Tax Court finds that the taxpayer has made an overpayment of income tax for the same taxable year in respect of which the Commissioner determined a deficiency, the Court has jurisdiction to determine the amount of 4The burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, 1998. Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726. - 5 - the overpayment, and the overpayment amount mus

tablish the existence of a business relationship consistent with the payment of compensation. Eyefull, Inc. v. Commissioner, supra (citing Paula Constr. Co. v. Commissioner, supra at 1058). "There must also be evidence that at the time 9 Pursuant to sec. 7491, the burden of proof can be shifted to respondent if certain conditions are met, including that the examination was commenced before July 22, 1998. Internal 'Revenue Restructuring & Reform Act of 1998, -Pub. L. 105-206, sec. 3001(c), 112 St

7491, Congress requires the burden of proof to be placed on the Commissioner, subject to certain limitations, where a taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for tax. In the instant case, petitioners have not raised the application of this provision. Further, the re

7491 is not applicable to these cases. Rinehart v. Commissioner, T.C. Memo. 2002-9, n.20. - 5 - Generally, we will not consider issues that are raised for the first time at trial or on brief. Foil v. Commissioner, 92 T.C. 376, 418 (1989), affd. 920 F.2d 1196 (5th Cir. 1990); Markwardt v. Commissioner, 64 T.C. 989, 997 (1975). Accordingly, we

7491, concerning burden of proof, has no bearing on this issue. 4 All amounts are rounded to the nearest dollar. - 3 - additional tax imposed by section 72(t). Respondent determined that the additional tax was due, and the dispute is now before this Court. Section 72(t) provides that: (1) * * * If any taxpayer receives any amount from a quali

5 (1994); DiLeo v. Commissioner, 96 1 Respondent’s examination of petitioners’ 1992 and 1993 joint Federal income tax returns began in 1996. Accordingly, the shift in the burden of proof or of production that is available in some circumstances under sec. 7491 is not applicable. - 8 - T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992). Particularly where taxpayers fail to keep adequate records, bank deposits constitute prima facie evidence of income. Tokarski v. Commissioner, 87 T.C. 74, 77 (

petitioner received from Hearth Home for the 15 days he worked in January 1997. Petitioners do not contend that the compensation for the 15 days is excludable from income. 2 Petitioners do not contend that the burden of proof is on respondent under sec. 7491, nor have petitioners established that they complied with the requirements of sec. 7491(a) (2) (A) and (B) to substantiate items, maintain required records, and fully cooperate with respondent's reasonable requests. _ 4 _ Disability benefit

the taxpayer substantiates by adequate records or sufficient evidence to corroborate the taxpayer's own testimony: (1) The amount of the expenditure or use based on the 1Petitioner has made no argument that the burden of proof shifting provisions of sec. 7491 apply to this case, nor has he offered any evidence that he has complied with the requirements of sec. 7491(a)(2). - 5 - appropriate measure (mileage may be used in the case of automobiles), (2) the time and place of the expenditure or use,

Because petitioner failed to comply with the requirements to substantiate any item, section 7491 is not applicable except that under section 7491(c), respondent has the burden of production with respect to petitioner’s liability for a penalty.

proof is placed on respondent as to any factual issue for which petitioner offers credible evidence that is relevant to his liability for the income tax deficiencies if certain conditions have been satisfied. According to the legislative history of sec. 7491: “The taxpayer has the burden of proving that it meets each of these conditions, because they are necessary prerequisites to establishing that the burden of proof is on the Secretary.” S. Rept. 105-174, at 45 (1998), 1998-3 C.B. 537, 581. Am

7491, Congress requires the burden of proof to be placed on the Commissioner, subject to certain limitations, where a taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for tax. In the instant case, petitioners have not raised the application of this provision. Further, the re

7491 is not applicable to these cases. Rinehart v. Commissioner, T.C. Memo. 2002-9, n.20. - 5 - Generally, we will not consider issues that are raised for the first time at trial or on brief. Foil v. Commissioner, 92 T.C. 376, 418 (1989), affd. 920 F.2d 1196 (5th Cir. 1990); Markwardt v. Commissioner, 64 T.C. 989, 997 (1975). Accordingly, we

7491, Congress requires the burden of proof to be placed on the Commissioner, subject to certain limitations, where a taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for tax. In the instant case, petitioners have not raised the application of this provision. Further, the re

7491, concerning burden of proof, has no bearing on this case. Similarly, respondent’s reliance on Bunney v. Commissioner, 114 T.C. 259 (2000), and Darby v. Commissioner, 97 T.C. 51 (1991), is misplaced.

7491, Congress requires the burden of proof to be placed on the Commissioner, subject to certain limitations, where a taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer’s liability for tax. In the instant case, petitioners have not raised the application of this provision. Further, the re

7491 does not place the burden of proof on respondent because the examination in this case began before July 22, 1998. Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 685, 724. Sec. 1402(a)(1) provides that excludable farm rental income includes rent paid in crop shares. Sec. 1.1402(a)-4, I

Section 7491 was enacted by section 3001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, 112 Stat. 685, 726. As so added, section 7491 is effective with respect to court proceedings arising in connection with examinations by the Commissioner commencing after July 22, 1998, the date of the enactme

for any particular purpose or that they remit to the employer any unspent per diem allowance. In certain circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, sec. 7491 places the burden of proof on the Commissioner. See sec. 7491(a); Rule 142(a)(2). Sec. 7491 is effective with respect to court proceedings arising in connection with examinations commencing after July 22, 1998. See Internal Revenue Service

7491 is effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioner does not contend that sec. 7491 is applicable to its case. Further, we do not find that the resolution of this case depends on which party has the burden of proof. Only one Indian reservation, the Annette Island Reserve, r

Although recently enacted section 7491 may operate in specified circumstances to place the burden on the Commissioner, the statute is effective only for court proceedings that arise in connection with examinations commencing after July 22, 1998.

ning the truth of petitioner’s assertions or accuracy as to the claimed deductions for expenses. It appears likely that petitioner underreported income and overstated deductions. As respondent has neither alleged that petitioner omitted income nor 2 Sec. 7491 does not affect the burden of proof where the taxpayer fails to produce credible evidence or substantiate deductions. Higbee v. Commissioner, 116 T.C. 438 (2001). - 8 - asserted an increased deficiency, we do not address this issue. Sec. 62

ability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend, nor is there evidence, that their examination commenced after July 22, 1998, or that sec. 7491 is applicable in this case. - 9 - 62 F.3d at 1271; Neely v. Commissioner, 85 T.C. 934, 947 (1985); Glassley v. Commissioner, T.C. Memo. 1996-206. The focus of inquiry is the reasonableness of the taxpayer’s actions in light of his experience

liability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioner does not contend, nor is there evidence, that his examination commenced after July 22, 1998, or that sec. 7491 is applicable in this case. - 7 - Neely v. Commissioner, 85 T.C. 934, 947 (1985); Glassley v. Commissioner, T.C. Memo. 1996-206. The focus of inquiry is on the reasonableness of the taxpayer’s actions in light of his experience and the natu

circumstances, if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the proper tax liability, section 7491 places the burden of proof on respondent.

ability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend, nor is there evidence, that their examination commenced after July 22, 1998, or that sec. 7491 is applicable in this case. - 8 - Corp. v. Commissioner, 60 T.C. 728, 740 (1973); Greene v. Commissioner, T.C. Memo. 1998-101, affd. without published opinion 187 F.3d 629 (4th Cir. 1999); Glassley v. Commissioner, supra; Turner v. Commissio

Section 7491 In pertinent part, Rule 142(a) provides: “The burden of proof shall be upon the petitioner, except as otherwise provided by statute * * * and except that, in respect of any new matter, * * * it shall be upon respondent.” In certain circumstances, if a petitioner introduces credible evidence with respect to any factual issue relevant to

Section 7491 does not change a taxpayer’s obligation to substantiate deductions. Higbee v. Commissioner, 116 T.C. 438 (2001). Generally, except as otherwise provided by section 274(d), when evidence shows that a taxpayer incurred a deductible expense, but the exact amount cannot be determined, the Court may approximate the amount bearing heavily if

rade or business. Sec. 162(a). Alternatively, section 212 allows a deduction for all of the ordinary and necessary expenses paid or incurred during the 1 The examination commenced after July 22, 1998; accordingly, we considered the applicability of sec. 7491. Petitioners did not assert, nor did they present evidence, that they complied with the requirements of sec. 7491(a)(2)(A) and (B) to substantiate items, maintain required records, and fully cooperate with respondent’s reasonable requests. A

Section 7491 does not change the burden of proof where a taxpayer has failed to substantiate deductions. Higbee v. Commissioner, 116 T.C. 438 (2001). Moreover, taxpayers must keep sufficient records to establish the amounts of the deductions. Meneguzzo v. Commissioner, 43 T.C. 824, 831 (1965); - 4 - sec. 1.6001-1(a), Income Tax Regs. Generally, ex

Section 7491, however, may shift the burden to the Commissioner in certain circumstances. Section 7491 is applicable to court proceedings that arise in connection with examinations commencing after July 22, 1998, and reads in pertinent part: SEC. 7491. BURDEN OF PROOF. (a) Burden Shifts Where Taxpayer Produces Credible Evidence.-- (1) General rule.

in 1997 is limited using a ratio determined by dividing the excess of the taxpayer’s modified adjusted gross income over $25,000, by $10,000. See sec. 219(g)(2) and (3). 4We do not find that the burden-shifting provisions of current sec. 6201(d) or sec. 7491 apply. - 5 - argues that the Form 1099-R provides sufficient evidence to sustain a determination that petitioner was both eligible for and an active participant in CDI’s retirement plan. We agree. Section 1.219-2(e), Income Tax Regs., does n

.S. 435, 440 (1934).4 A taxpayer is required to maintain records sufficient to establish the amount of his or her income and deductions. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs. Section 162(a) allows a taxpayer to deduct all ordinary and 4 Sec. 7491 does not alter the taxpayer’s burden of proof where the taxpayer has not complied with all substantiation requirements. Higbee v. Commissioner, 116 T.C. 438, 442 (2001). - 8 - necessary business expenses paid or incurred during the taxable

urt Rules of Practice and Procedure, and all section references are to the Internal Revenue Code in effect for the years in issue, unless otherwise indicated. 2Although respondent’s examination of the 1998 taxable year commenced after July 22, 1998, sec. 7491 does not necessarily shift the burden of proof to respondent on any of the issues in the case. The stipulation of facts was prepared by respondent using documents that respondent had obtained from sources other than petitioner, and petition

see Welch v. Helvering, 290 U.S. 111, 115 (1933), and in refund cases that the taxpayer bears the burden of showing the amount that he is owed, see United States v. Janis, supra at 440. It is also inconsistent with Congress's intent as expressed in sec. 7491, which was added to the Code by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(2), 112 Stat. 685, (continued...) - 12 - B. Minimal Evidentiary Foundation The Court of Appeals has not specifie

In certain circumstances, if a petitioner introduces credible evidence with respect to any factual issue relevant to ascertaining such petitioner’s liability for tax, section 7491 places the burden of proof on respondent.

v. Commissioner, 61 T.C. 367, 377 (1973). Whether the requisite intention to create a true debtor-creditor relationship existed is a question of fact to be determined from a review of all the evidence. Id. Factors "The burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, . 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L.. 105-206, sec. 3001, 112 Stat. 726. - 28 - . we ordinarily consider in our analysi

year. There is no credible evidence (i.e., rent payments, lease agreements, canceled checks, general ledgers, etc.) establishing that petitioner rented the property to those individuals. Depreciation and maintenance expenses relating to a residence 1Sec. 7491 is not applicable to this case. - 4 - occupied on a rent-free basis are not deductible. Prince Trust v. Commissioner, 35 T.C. 974 (1961). B. Seabrook and Indiana In determining the allocation of basis between land and improvements for Seabr

Although recently enacted section 7491 may operate in specified circumstances to place the burden on the Commissioner, the statute is effective only for court proceedings that arise in connection with examinations commencing after July 22, 1998.

that the Sentinel EPE Recyclers had a 4 Cf. sec. 7491(c), effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioner does not contend that his examination commenced after July 22, 1998, or that sec. 7491 is applicable to his case. - 14 - maximum value of $50,000 each. Petitioner, nevertheless, contends that he was reasonable in claiming deductions and credits with respect to the partnership on his 1982 Federal income tax return based upon e

ubmitted to the Court establishes that petitioners’ primary, predominant, or principal motive for engaging in the horse activity was not for profit. 5(...continued) Petitioners do not contend that their examination began after July 22, 1998, or that sec. 7491 is applicable to their case. - 17 - A. Manner in Which the Activity Is Conducted Petitioners hired professionals to keep books and records and to prepare their returns. They also hired professionals to work in the horse activity as grooms,

7491 (generally effective with respect to examinations commencing after July 22, 1998). However, the Court of Appeals for the Ninth Circuit, to which - 7 - appeal in the instant case would normally lie, has indicated that before the presumption of correctness will attach in an unreported income case, the determination must be supported by at

and deducted for Mr. Myers and Mrs. Myers, we consider the total compensation they received, including bonuses. 9The Internal Revenue Service Restructuring and Reform Act of 1998 (RRA), Pub. L. 105-206, sec. 3001(a), 112 Stat. 685, 726- 727, enacted sec. 7491 to shift the burden of proof to respondent (continued...) - 18 - Compensation paid by a corporation whose stock is closely held (as in the case at hand) is to be given special scrutiny. Elliotts, Inc. v. Commissioner, supra at 1243; Pepsi-C

Section 7491, effective for court proceedings arising in connection with examinations commencing after July 22, 1998, shifts the burden of proof to the Commissioner, under certain circumstances, where a taxpayer introduces credible evidence with respect to factual issues relevant to ascertaining the taxpayer's liability for tax. See Internal Revenu

7491, which is effective for examinations commenced after July 22, 1998, shifts the burden of proof to the Commissioner under certain circumstances. Petitioner has not raised the application of this provision. Additionally, we cannot ascertain from the record whether respondent’s examination commenced after July 22, 1998. We therefore conclude

Section 7491 In pertinent part, Rule 142(a) provides: “The burden of proof shall be upon the petitioner, except as otherwise provided by statute * * * and except that, in respect of any new matter, * * * it shall be upon respondent.” In certain circumstances, if a petitioner introduces credible evidence with respect to any factual issue relevant to

dditions to tax. Sec. 7491(c) is effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend, nor is there evidence, that their examination commenced after July 22, 1998, or that sec. 7491 is applicable in this case. The notices of deficiency sent to petitioners with respect to the years in issue are dated Jan. 27, 1995. - 16 - 1. Petitioners’ Investment Experience and Sophistication. Petitioners argue that their lack of educ

liability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioner does not contend, nor is there evidence, that his examination commenced after July 22, 1998, or that sec. 7491 is applicable in this case. - 8 - Corp. v. Commissioner, 60 T.C. 728, 740 (1973); Greene v. Commissioner, T.C. Memo. 1998-101, affd. without published opinion 187 F.3d 629 (4th Cir. 1999); Glassley v. Commissioner, supra; Turner v. Commissi

espect to a taxpayer’s liability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend that their examination commenced after July 22, 1998, or that sec. 7491 is applicable in these cases. - 8 - Anderson v. Commissioner, T.C. Memo. 1993-607, affd. 62 F.3d 1266 (10th Cir. 1995). Negligence is defined as the failure to exercise the due care that a reasonable and ordinarily prudent person would exer

er hand, generally are not deductible. See sec. 262(a). A taxpayer is required to keep adequate records sufficient to enable the Commissioner to determine the taxpayer’s correct 7Contrary to petitioners’ assumption, the burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726. - 22 - tax liability. See sec. 6001; Meneguzzo v.

Furthermore, although section 7491, applicable to court proceedings that arise in connection with examinations commencing after July 22, 1998, may place the burden on the Commissioner in certain circumstances, a prerequisite is that the taxpayer present credible evidence.

pouse is not a member of the household during the last 6 months of the tax year. See sec. 7703(b). Petitioner contends that his son Tye lived with him at the Lower Wetumpka Road house in 1994 and 1995, and that he 3 The burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. - 10 - provided more than half of the cost of

Section 7491 In pertinent part, Rule 142(a) provides: “The burden of proof shall be upon the petitioner, except as otherwise provided by statute * * * and except that, in respect of any new matter, * * * it shall be upon respondent.” In certain circumstances, if a petitioner introduces credible evidence with respect to any factual issue relevant to

Recently enacted section 7491, however, may operate in specified circumstances to place the burden on the Commissioner.

ability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend, nor is there evidence, that their examination commenced after July 22, 1998, or that sec. 7491 is applicable in this case. - 8 - Commissioner, T.C. Memo. 1998-101, affd. without published opinion 187 F.3d 629 (4th Cir. 1999); Glassley v. Commissioner, supra; Turner v. Commissioner, T.C. Memo. 1995-363. Whether a taxpayer is negligent

Section 7491 In pertinent part, Rule 142(a) provides: “The burden of proof shall be upon the petitioner, except as otherwise provided by statute * * * and except that, in respect of any new matter, * * * it shall be upon respondent.” In certain circumstances, if a petitioner introduces credible evidence with respect to any factual issue relevant to

espect to a taxpayer’s liability for penalties and additions to tax in court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend that their examination commenced after July 22, 1998, or that sec. 7491 is applicable in these cases. - 8 - Anderson v. Commissioner, T.C. Memo. 1993-607, affd. 62 F.3d 1266 (10th Cir. 1995). Negligence is defined as the failure to exercise the due care that a reasonable and ordinarily prudent person would exer

Although recently enacted section 7491 may operate in specified circumstances to place the burden on the Commissioner, the statute is effective only for court proceedings that arise in connection with examinations commencing after July 22, 1998.

ontends that she realized no taxable income during 1994 relating to the forgiveness of debt. She maintains that when she received the $50,000 from the corporation the Pattersons had agreed to treat the payment as a SThe burden of proof provisions of sec. 7491 do not apply here because the examination in this case began prior to July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726. In support of this contention, respondent relie

7491.3 The fact that petitioner's education is helpful to her in the performance of her employment does not establish that its cost is deductible as a business expense. See Carroll v. Commissioner, 51 T.C. 213, 215 (1968), affd. 418 F.2d 91 (7th Cir. 1969). Petitioner must establish that there is a direct and proximate relationship between the

to examine the evidence used in making the determination. See Petzoldt v. Commissioner, 92 T.C. 661, 688 (1989); 3 The Internal Revenue Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 724-727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491, however, is applicable to "court proceedings arising in connection with examinations commencing after the date of the enactment of this Act." RRA 1998 se

spondent does not dispute that Mahmoud’s gross income was less than the exemption amount, but contends that Gabriel did not 11 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 685, 724-727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491, however, is applicable to court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend, nor does

proved that he had losses which were suspended in prior years. Petitioner, however, is entitled to deduct the operating expenses 5 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub.L. 105-206, sec. 3001, 112 Stat. 685, 726, added sec. 7491, which is applicable to court proceedings arising in connection with examinations commencing after July 22, 1998. Under sec. 7491, Congress requires the burden of proof to be shifted to the Commissioner, subject to certain limitations, wher

7491 as effective for court proceedings arising in connection with examinations commencing after July 22, 1998.4 In order to be entitled to an earned income credit, petitioner is therefore obliged to prove that she had earned income in 1996. Section 32 provides for an earned income credit. In order to be entitled to an earned income credit, th

spondent does not dispute that Mahmoud’s gross income was less than the exemption amount, but contends that Gabriel did not 11 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 685, 724-727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491, however, is applicable to court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend, nor does

mmissioner, 975 F.2d 534, 538 (8th Cir. 1992), affg. in part, revg. in part and remanding T.C. Memo. 1991-140; Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992); Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). 3The burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 685, 724. - 15 - It is not enough for petitioners t

5 The record does not include the basis for respondent’s concession. The petition suggests that petitioners may have received Social Security benefits in the amount of $11,598. If this were the case, then respondent’s determination in the deficiency notice that $1,682 of such amount was taxable would appear to be consistent with the prov

eimerskirch v. Commissioner, 596 F.2d 358, 360- 361 (9th Cir. 1979), revg. 67 T.C. 672 (1977); Petzoldt v. Commissioner, 92 T.C. 661, 687-690 (1989) (discussing Court of 7 We do not find that the burden-shifting provisions of current sec. 6201(d) or sec. 7491 apply. - 21 - Appeals for the Ninth Circuit authorities). Once the Commissioner has introduced the necessary “predicate evidence” concerning the unreported income, however, the taxpayer has the usual burden of establishing, by a preponderan

7491, effective for court proceedings arising in connection with examinations commencing after July 22, 1998. - 6 - Respondent determined that petitioner is liable for an addition to tax under section 6651(a)(1) for failure to timely file his 1995 return. Petitioner asserts that he did not file a return for 1995 because he received a Form 109

laimed a dependency exemption for his son, Bradley, on his 1995 Federal income tax return. Respondent 3On his pretrial memorandum, petitioner referenced the Taxpayer Bill of Rights as applying in this case. However, the burden of proof provisions of sec. 7491 do not apply here because the examination in this case began prior to July 22, 1998. See IRS Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726. - 6 - determined that petitioner is not entitled to the dependency exemption

ming a tax deduction “depends upon both the legitimacy of the underlying investment, and due care in the claiming of the deduction.” Sacks v. Commissioner, 82 F.3d 2(...continued) contend that their examination commenced after July 22, 1998, or that sec. 7491 is applicable to them. - 7 - 918, 920 (9th Cir. 1996), affg. T.C. Memo. 1994-217; see Greene v. Commissioner, supra. A taxpayer may avoid liability for negligence penalties under some circumstances if the taxpayer reasonably relied on compe

spondent does not dispute that Mahmoud’s gross income was less than the exemption amount, but contends that Gabriel did not 11 The Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 685, 724-727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. Sec. 7491, however, is applicable to court proceedings arising in connection with examinations commencing after July 22, 1998. Petitioners do not contend, nor does

the taxpayer bears the burden of proving the entitlement to any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).10 Taxpayers must substantiate any deductions 10Sec. 7491, as effective for court proceedings arising in connection with examinations after July 22, 1998, shifts the (continued...) - 17 - claimed. See Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976)

se they overpaid their taxes for 1992. Petitioners rely on the chart attached to petitioner’s September 17, 1999, letter to respondent’s counsel. Petitioner testified that the chart is based on his records and his 4 The burden of proof provisions of sec. 7491 do not apply here because the examination in this case began before July 22, 1998. See Internal Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 685, 727. - 9 - personal knowledge of his tax liabi

7491, effective for court proceedings arising in connection with examinations commencing after July 22, 1998. Respondent determined that petitioner is liable for an addition to tax under section 6651(a)(1) for failure to file timely his 1993 return. Petitioner testified at trial that he mailed his return to respondent timely as he did every ye

dence to support a finding contrary to the Commissioner's determination. See Rockwell v. Commissioner, 512 92 Under sec. 3001 of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726, Congress enacted new sec. 7491, which provides, effective with respect to examinations commenced after July 22, 1998, that the burden of proof shifts to the Commissioner when the taxpayer produces credible evidence in opposition to the Commissioner's determination of a de

dence to support a finding contrary to the Commissioner's determination. See Rockwell v. Commissioner, 512 92 Under sec. 3001 of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726, Congress enacted new sec. 7491, which provides, effective with respect to examinations commenced after July 22, 1998, that the burden of proof shifts to the Commissioner when the taxpayer produces credible evidence in opposition to the Commissioner's determination of a de

s. First, we note that petitioner must show that respondent’s determination is in error. See Rule 142(a).2 Respondent 2 At trial, petitioner referenced the Taxpayer Bill of Rights as applying to this case. However, the burden of proof provisions of sec. 7491 do not apply here because the examination (continued...) - 5 - reasonably relied on the information received from third parties that payments had been made to petitioner. Petitioner did not file a return or any other document under oath that

dence to support a finding contrary to the Commissioner's determination. See Rockwell v. Commissioner, 512 92 Under sec. 3001 of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726, Congress enacted new sec. 7491, which provides, effective with respect to examinations commenced after July 22, 1998, that the burden of proof shifts to the Commissioner when the taxpayer produces credible evidence in opposition to the Commissioner's determination of a de

dence to support a finding contrary to the Commissioner's determination. See Rockwell v. Commissioner, 512 92 Under sec. 3001 of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726, Congress enacted new sec. 7491, which provides, effective with respect to examinations commenced after July 22, 1998, that the burden of proof shifts to the Commissioner when the taxpayer produces credible evidence in opposition to the Commissioner's determination of a de

dence to support a finding contrary to the Commissioner's determination. See Rockwell v. Commissioner, 512 92 Under sec. 3001 of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat. 726, Congress enacted new sec. 7491, which provides, effective with respect to examinations commenced after July 22, 1998, that the burden of proof shifts to the Commissioner when the taxpayer produces credible evidence in opposition to the Commissioner's determination of a de

are arbitrary and excessive or without rational foundation, then the presumption no longer applies.3 Pittman v. 2 The Internal Revenue Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 726- 727, added sec. 7491, which shifts the burden of proof to the Secretary in certain circumstances. However, sec. 7491 is applicable to "court proceedings arising in connection with examinations commencing after the date of the enactment of this Act." RRA 1998, s