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demonstrated an intent to “continue” deference to the annual
statement, Congress also explicitly stated its understanding, as
described above, that such deference does not preclude the IRS
from adjusting the estimates used on the annual statement. We
are unconvinced that Congress intended to “strengthen” deference
to the annual statement by expanding it beyond the limits
reflected in the applicable regulations and judicial precedents,
as expressly referenced in the legislative history.
The applicable regulations “give notice to the taxpayer that
the Code will be enforced”, by restating the principle that
taxpayers must prove their entitlement to deductions. Hanover
Ins. Co. v. Commissioner, 598 F.2d at 1219. These procedural
aspects of the applicable regulations are consistent with general
burden of proof concepts that obtain in this Court. Whether a
taxpayer’s estimates of its unpaid losses are fair and reasonable
is essentially a valuation issue and thus a question of fact.
Hanover Ins. Co. v. Commissioner, 69 T.C. at 270. The burden of
proof is upon the taxpayer. Id.; see Rule 142(a); Welch v.
Helvering, 290 U.S. 111 (1933); Pittman v. Commissioner, 100 F.3d
1308, 1313 (7th Cir. 1996), affg. T.C. Memo. 1995-243.
Consistent with the requirements of the applicable
regulations, this Court has stated that when the annual statement
methodology is predicated on estimates, those estimates must be
the “best possible.” Bituminous Cas. Corp. v. Commissioner, 57
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