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penalty under section 6662(a) for negligence or intentional
disregard of rules or regulations.
Discussion
As a general rule, the burden of proof in a deficiency
action is on the taxpayer. See Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290
U.S. 111, 115 (1933). Effective for court proceedings arising
in connection with examinations commencing after July 22, 1998,
section 7491(a)(1) serves to shift the burden of proof to the
Commissioner when the taxpayer introduces credible evidence
with respect to a factual issue relevant to ascertaining the
liability of the taxpayer. However, section 7491(a)(2) places
limitations on this burden-shifting rule. Thus, section
7491(a)(1) applies with respect to an issue only if (inter
alia) the taxpayer has complied with all statutory and
regulatory requirements to substantiate any item and the
taxpayer has maintained all records required under the Internal
Revenue Code. See sec. 7491(a)(2)(A) and (B).
We have previously found as a fact that respondent
commenced the examination of petitioner’s 1995 income tax
return no later than June 1997. Accordingly, the burden-
shifting rule of section 7491(a)(1) has no application to that
year. In contrast, we have found as a fact that respondent
commenced the examination of petitioner’s 1996 income tax
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