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appeal in the instant case would normally lie, has indicated that
before the presumption of correctness will attach in an
unreported income case, the determination must be supported by at
least a “minimal” factual predicate or foundation of substantive
evidence linking the taxpayer to income-generating activity or to
the receipt of funds. Palmer v. IRS, supra at 1312-1313; see
also Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985);
Petzoldt v. Commissioner, supra at 687-689.
Here, the record clearly links petitioner to an income-
producing activity. Bicycle Sport, even according to
petitioner’s own returns, generated substantial gross sales in
each of the years at issue. Accordingly, respondent’s
reconstructions of the business’s profits, to the extent they
reveal unreported income, are supported by the requisite factual
predicate for placing the burden to show otherwise upon
petitioner.
A. 1986
On the Schedule C attached to petitioner’s 1986 Form 1040,
U.S. Individual Income Tax Return, gross receipts from Bicycle
Sport are shown as $311,159. After deductions, petitioner
reported a net loss from his business of $5,063. Respondent
accepted, and the parties stipulated, that gross sales in 1986
were $311,159. However, because petitioner provided no records
substantiating his claimed expenditures, respondent used industry
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