Stuart M. Smith, Jr. - Page 3




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         for Perrier Group of America during 1995 and 1996.  At the time              
         he made his determinations, respondent had no record (i.e., no               
         Forms W-2 or 1099) of petitioner’s working for either of these               
         businesses.                                                                  
              Petitioner failed to provide respondent with any information            
         relating to his income.  Respondent, using 1992 as the base year,            
         reconstructed petitioner’s gross income relating to 1993 through             
         1996 by applying the Consumer Price Index (CPI) method to 1993               
         through 1996 and subtracting income reported on Forms W-2 and                
         1099.  On December 9, 1998, respondent mailed petitioner notices             
         of deficiency in which respondent determined that petitioner:                
         (1) Received self-employment income of $5,524, $19,986, $17,165,             
         and $23,329 relating to 1993, 1994, 1995, and 1996, respectively;            
         and (2) was liable for income tax and, pursuant to section 1401,             
         self-employment tax.                                                         
                                       OPINION                                        
         I.   Reconstructed Self-Employment Income                                    
              Generally, a notice of deficiency is presumed correct, and              
         the taxpayer bears the burden of proving that the determination              
         is erroneous.  See Welch v. Helvering, 290 U.S. 111, 115 (1933).             
         The Court of Appeals for the Fifth Circuit, where an appeal would            
         lie, has recognized, however, that “a court need not give effect             
         to the presumption of correctness in a case involving unreported             
         income if the Commissioner cannot present some predicate evidence            






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