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the presumption of correctness may not attach, and the finding of
unreported income may be arbitrary, unless the Commissioner links
the taxpayer to an income-producing activity, see Palmer v. IRS,
116 F.3d 1309, 1313 (9th Cir. 1997); Rapp v. Commissioner, 774
F.2d 932, 935 (9th Cir. 1985); or to ownership of liquid assets,
see Erickson v. Commissioner, 937 F.2d 1548, 1551-1552 (10th Cir.
1991), affg. T.C. Memo. 1989-552; Delaney v. Commissioner, 743
F.2d 670, 672 (9th Cir. 1984), affg. T.C. Memo. 1982-666;
Tokarski v. Commissioner, 87 T.C. 74, 76 (1986).3
Respondent has linked petitioner to income-producing
activities and ownership of liquid assets in 1990 and 1991.
Petitioner is deemed to have admitted, and third-party
information returns document, that he received nonemployee
compensation in 1990 in connection with the California Barbecue
activity from Hewlett-Packard Co., Stanford University, Syva Co.,
Apple Computer, Inc., Oracle Corp., and Nordstrom, Inc.; and in
1991 from Stanford University. This evidence further shows that
Forms 1099-MISC were issued by the foregoing payers to California
Barbecue at petitioner’s address, with a taxpayer identification
number that matched petitioner’s Social Security number.
3 The rule requiring the Commissioner to provide an
evidentiary foundation linking the taxpayer to the income-
producing activity arose in connection with illegal-source
income. See Weimerskirch v. Commissioner, 596 F.2d 358, 361-362
(9th Cir. 1979), revg. 67 T.C. 672 (1977). It is now established
that the Court of Appeals for the Ninth Circuit, to which an
appeal of this case would lie, applies the rule in all cases
involving the receipt of unreported income. Cf. Palmer v. IRS,
116 F.3d 1309, 1313 (9th Cir. 1997); Edwards v. Commissioner, 680
F.2d 1268, 1270-1271 (9th Cir. 1982).
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