- 22 -
Normally, an allegation that a notice of deficiency lacks a
rational basis is tantamount to an argument that the notice is
arbitrary.13 However, petitioners' argument that the notice of
deficiency issued to them lacks a rational basis, when considered
in conjunction with petitioners' argument that the notice served
to fraudulently toll the period of limitations, indicates that
petitioners continue to assert that the notice of deficiency is
invalid. We rejected this contention in Richards I where we
observed that
the notice of deficiency concerns petitioners' tax
liability for 1978 and that the deficiency is
attributable to respondent's determination to disallow
an interest deduction in the amount of $67,972.50 with
respect to petitioners' participation in Kersting
programs. Petitioners do not dispute that they
reported a Kersting-related interest deduction on their
1978 income tax return. Consequently, we find that
respondent considered information relating to
petitioners' 1978 tax liability in preparing the notice
of deficiency. Scar v. Commissioner, 814 F.2d at 1370.
In addition, unlike Scar, * * * the notice does not
contain a statement that respondent issued the notice
without examining petitioners' tax return in order to
protect the Government's interest. Under the
circumstances, the notice of deficiency does not reveal
on its face that respondent failed to make a
determination with respect to petitioners' tax
liability, and we so hold. [Richards v. Commissioner,
T.C. Memo. 1997-149, slip op. at 18.]
13 A finding that a notice of deficiency was issued on an
arbitrary basis does not render the notice invalid, see Clapp v.
Commissioner, 875 F.2d 1396, 1402-1403 (9th Cir. 1989), and would
not per se constitute a fraud upon the Court.
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