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their deduction to interest on $1.1 million indebtedness based on
advice from an accountant. In her notice of deficiency,
respondent completely disallowed petitioners' Schedule A
deduction for home mortgage interest.
As a result of the October 31, 1995, meeting with
petitioner, Clement allowed the Paus a home mortgage interest
deduction, but he limited the allowable deduction to the interest
on $1 million indebtedness. Consequently, he calculated that the
allowable deduction is $99,040 rather than the $107,226 claimed
by petitioners, a difference of $8,186. Clement also increased
the Schedule A deduction for personal interest by $819, from
$4,210 to $5,029.
OPINION
As a general rule, the Commissioner's determinations are
presumed correct, and taxpayers bear the burden of proving that
those determinations are erroneous. Accordingly, with respect to
deficiencies flowing from the home mortgage interest deduction
and the $840,000 omission, petitioners have the burden of proof.
Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933). Since the
$150,000 omission was asserted by respondent after the notice of
deficiency was mailed, it is new matter on which respondent bears
the burden. Rule 142(a). Respondent also bears the burden of
proving, by clear and convincing evidence, that petitioners are
liable for the civil fraud penalty. Sec. 7454(a); Rule 142(b).
Issue 1. Penalty Pursuant to Section 6663
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