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sales. The only evidence supporting this determination consisted
of statements made to the agent by two confidential informants
and certain information obtained by him from law enforcement
officials. No admissible evidence was introduced at the trial to
substantiate those statements or information otherwise linking
the taxpayer to drug dealing. The Court of Appeals for the Ninth
Circuit held that a "deficiency determination which is not
supported by the proper foundation of substantive evidence is
clearly arbitrary and erroneous" and that the Government had the
burden of producing some evidence linking the taxpayer to an
income-producing activity. Id. at 362. This is true even where
that taxpayer has not made a showing that the notice was
arbitrary. Id. at 361; Petzoldt v. Commissioner, 92 T.C. 661, 689
(1989).
The facts in the instant case, however, are more closely
aligned with Delaney v. Commissioner, 743 F.2d 670 (9th Cir.
1984), affg. T.C. Memo. 1982-666; Tokarski v. Commissioner, 87
T.C. 74 (1986); and Schad v. Commissioner, 87 T.C. 609 (1986),
affd. without published opinion 827 F.2d 774 (11th Cir. 1987).
In each of these cases, the taxpayers possessed liquid assets or
expended funds during the taxable year.
Respondent has offered ample evidence that petitioner was in
possession of the funds respondent seeks to tax as income. In
1988, Government agents seized $27,620 from petitioner's
Cadillac, and $5,965,240, which petitioner had put into safe
deposit boxes in 1987. In 1995, the DEA seized $339,860 which
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