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expense deductions, was not entitled to net operating loss deductions or
general business credits, had understated his Schedule E rental income, had
not substantiated certain amounts of Schedule E rental expenses, realized and
recognized a capital gain upon the disposition of his TSI stock, and was
liable for the additions to tax for fraud and substantial understatement of
Federal income tax for the years in issue. In the alternative, respondent
determined that petitioner was liable for additions to tax for negligence and
delinquency for failure to timely file Federal income tax returns for years
1986 and 1987.
OPINION
Before dealing with the principal issues in the instant case, we will
deal with two preliminary matters. First, petitioner contends that
respondent's determinations in the notice of deficiency should not be given a
presumption of correctness because the determinations are arbitrary. His
argument implies that because respondent has made a number of concessions, the
notice of deficiency is therefore arbitrary. We find no merit to this
argument. To overcome the presumption of correctness, a taxpayer must prove
by a preponderance of the evidence that the deficiency was arbitrarily
derived. Shriver v. Commissioner, 85 T.C. 1 (1985), affd. per order (7th Cir.
1986); Dellacroce v. Commissioner, 83 T.C. 269 (1984); Llorente v.
Commissioner, 74 T.C. 260 (1980), affd. in part and revd. in part 649 F.2d 152
(2d Cir. 1981). Moreover, a determination that some part of a deficiency is
erroneous does not necessarily make the deficiency notice arbitrary and shift
the burden of proof to respondent. Wells v. Commissioner, T.C. Memo. 1983-
788. Furthermore, before a trial in the Tax Court, both parties are required
to stipulate all matters to the maximum extent possible. See U.S. Tax Court
Standing Pre-Trial Order. Accordingly, we hold that the burden of proof
remains with petitioner.
Second, petitioner argues that respondent is collaterally estopped from
her determinations because respondent has previously approved petitioner's
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