- 6 -
incorrect.2 Rule 142(a); United States v. Janis, 428 U.S. 433,
441-442 (1976); Welch v. Helvering, 290 U.S. 111, 115 (1933);
Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374, 1378 (7th
Cir. 1990), affg. Malicki v. Commissioner, T.C. Memo. 1988-559.
If, however, the taxpayer demonstrates that the Commissioner's
determinations 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, sec. 3001(c). The
Internal Revenue Service Restructuring & Reform Act of 1998 was
enacted on July 22, 1998, and, accordingly, neither party argues
that sec. 7491 is applicable to the instant case.
3 On brief, petitioner cites Anastasato v. Commissioner, 794
F.2d 884 (3d Cir. 1986), vacating and remanding T.C. Memo. 1985-
101, for the proposition that respondent bears the burden of
proving that the deficiency notice is not arbitrary or erroneous
where it is based upon alleged unreported income. Petitioner,
however, misconstrues Anastasato. Respondent does not have the
burden to prove that the deficiency notice is not arbitrary;
rather, petitioner has the burden to prove that the deficiency
notice is arbitrary. See Anastasato v. Commissioner, 794 F.2d
884, 887 (3d Cir. 1986) ("If the taxpayer rebuts the presumption
by showing that it is arbitrary and erroneous * * * the
presumption disappears."); see also Pittman v. Commissioner, 100
F.3d 1308, 1313 (7th Cir. 1996) ("Thus, to rebut the presumption
of correctness and shift the burden to the Commissioner, the
taxpayer must demonstrate that the Commissioner's deficiency
assessment lacks a rational foundation or is arbitrary and
excessive." (Citations omitted.)), affg. T.C. Memo. 1995-243;
Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374, 1378 (7th
Cir. 1990) ("If the taxpayer demonstrates that the assessment is
arbitrary and excessive or without factual foundation, then the
presumption no longer applies." (Citation omitted.)), affg.
(continued...)
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