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Revenue Code in effect for the year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
The issues we must decide in the instant case are: (1)
Whether the notice of deficiency is invalid on the ground that
respondent failed to make a proper determination of a deficiency;
(2) whether the respondent has the burden of going forward with
the evidence because the notice of deficiency lacks predicate
evidence or is arbitrary; and (3) whether the Court properly
excluded testimony of petitioners' witness.
Background
The parties submitted the instant case fully stipulated
pursuant to Rule 122. The stipulated facts are incorporated
herein by reference and are found as facts in the instant case.
Petitioners resided in Forest Hills Gardens, New York, when they
filed their petition.
On their timely filed Federal income tax return for taxable
year 1995, petitioners reported $13,072 of taxable interest
income, $58,566 of taxable dividend income, and $21,872 of
taxable Schedule C business income. Respondent issued an
examination report proposing an additional Federal income tax
liability of $3,195.70 for petitioners' 1995 taxable year based
upon the disallowances of various deductions that they reported
on Schedules C, Profit or Loss From Business, and E, Supplemental
Income and Loss. Petitioners consented to the
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