Warren L. Baker, Jr. and Dorris J. Baker - Page 15




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          12-P should not be admitted for the truth of the contents because           
          it contains hearsay.  To be consistent with our treatment of                
          Exhibit 12-P, we admit Exhibit 13-R for the limited purpose of              
          supplementing Exhibit 12-P but not for the truth of the                     
          assertions made therein.  Fed. R. Evid. 401, 701, 801.                      
          III.  Burden of Proof                                                       
               Generally the taxpayer bears the burden of proof.  Rule                
          142(a)(1).  Section 7491, which is effective with respect to                
          court proceedings arising in connection with examinations by the            
          Commissioner commencing after July 22, 1998, the date of its                
          enactment by section 3001(a) of the Internal Revenue Service                
          Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat.            
          726, does not apply to place the burden of proof on respondent.             
          Petitioners have neither alleged that section 7491 is applicable            
          nor established that they complied with the requirements of                 
          section 7491(a)(2)(A) and (B) to substantiate items, maintain               
          required records, and fully cooperate with respondent’s                     
          reasonable requests.                                                        
          IV. Sale or Exchange of a Capital Asset                                     
               We must decide the proper characterization of the                      
          termination payment made by State Farm to petitioner.  We first             
          consider whether petitioner owned a capital asset and whether               
          petitioner sold or exchanged a capital asset for Federal income             
          tax purposes.  We also consider whether petitioner sold a                   






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