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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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