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did not observe personally the counting of the cash at the
restaurants.
Nakamura prepared Toraya's tax returns for the years ending
1988, 1989, 1990, and 1991. In preparing Toraya's tax returns,
Nakamura believed that he was picking up all taxable sales. He
did not have waitress tags from daily sales, cash receipt
records, or bills and statements from the restaurants.
Toraya filed its 1988 calendar year tax return on or about
July 21, 1990. It filed its 1989 calendar year tax return on or
about August 26, 1990. Toraya had an extension to file the 1989
return to September 15, 1990. Respondent concedes that Toraya
timely filed its 1989 return.
OPINION
The Commissioner's deficiency determination is normally
entitled to a presumption of correctness, Rapp v. Commissioner,
774 F.2d 932, 935 (9th Cir. 1985), and the burden of proving the
determination erroneous generally rests on the taxpayer, Rule
142(a); Welch v. Helvering, 290 U.S. 111 (1933). However, in the
case of unreported income, the rule in the Court of Appeals for
the Ninth Circuit (to which this case is appealable) is that the
presumption in favor of the Commissioner arises only where it is
supported by a minimal factual foundation linking the taxpayer
with income-producing activity. See, e.g., Palmer v. United
States, 116 F.3d 1309, 1313 (9th Cir. 1997); Rapp v.
Commissioner, supra; Delaney v. Commissioner, 743 F.2d 670, 671
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