- 8 -
deductible expenses." Petitioner has stipulated to most of the
specific items of income from identified sources as determined by
respondent.3 Petitioner also admits that he received unreported
income in some of the years, but in lesser amounts than
determined by respondent, and denies receipt of unreported income
in others. Petitioner contends that respondent's determinations
of unreported income are arbitrary and erroneous.
In general, respondent's determinations in the notices of
deficiency are entitled to a presumption of correctness, and
petitioner has the burden of proving them incorrect. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). However,
the determinations may lose their presumption of correctness if
they are arbitrary and erroneous. Pittman v. Commissioner, supra
at 1317. In order to maintain the presumption of correctness,
respondent's determinations need only have some minimal factual
predicate. Id. The determinations need only be rational, not
flawless, and to vitiate the presumption of correctness, a
taxpayer must show that the determinations were arbitrary and
erroneous, not merely erroneous. Id. To establish the required
factual predicate, it is ordinarily sufficient for the
Commissioner to show that the taxpayer was engaged in an income-
producing activity for each year in which it has been determined
3 With respect to respondent's determination of income from
real estate sales in 1989 and 1991, petitioner has stipulated
only to the amount of the gross sales proceeds in each
transaction.
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