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Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324, 327
(1974).
The presumption, however, is not irrebuttable. In certain
limited circumstances, if the taxpayer proves by a preponderance
of the evidence that the Commissioner's determinations are
arbitrary and excessive, or without rational foundation, then the
presumption no longer applies. See Page v. Commissioner, 58 F.3d
1342, 1347 (8th Cir. 1995), affg. T.C. Memo. 1993-398; Long v.
Commissioner, 757 F.2d 957, 959 (8th Cir. 1985).
Courts have identified an exception to the presumption of
correctness where the Commissioner, in a case involving
unreported income, introduces no direct evidence but rests on the
presumption of correctness and the taxpayer challenges the
deficiency on the grounds that it is arbitrary. See Schad v.
Commissioner, 87 T.C. 609, 618 (1986), affd. without published
opinion 827 F.2d 774 (11th Cir. 1987); see also Senter v.
Commissioner, T.C. Memo. 1995-311.
Thus, to rebut the presumption of correctness and shift the
burden of producing evidence to the Commissioner, the taxpayer
must demonstrate that the Commissioner’s deficiency assessment
lacks a rational foundation or is arbitrary and excessive. See
Pittman v. Commissioner, 100 F.3d 1308, 1313 (7th Cir. 1996),
affg. T.C. Memo. 1995-243; Page v. Commissioner, supra; Long v.
Commissioner, supra.
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