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determined that the “contract value” payments are subject to
self-employment tax under section 1401.
Respondent’s answer concedes that the $167,126 in “contract
value” paid by Farmers directly to Gloria Farnsworth during 1995
should be taxable to Gloria Farnsworth and not to petitioners.
OPINION
Issue 1. Are Petitioners Entitled To Exclude From Income, As a
Recovery of Basis, Any Portion of the DMAA Payments They Received
in 1995?
Petitioners have the burden of proof to establish the amount
of Mr. Farnsworth’s basis, if any, in the DMAA contract. See
Rule 142 (burden of proof generally on petitioner); Martin Ice
Cream Co. v. Commissioner, 110 T.C. 189, 220 (1998) (Court
accepted Commissioner’s determination that taxpayer had no basis
in stock where taxpayer failed to introduce evidence to establish
basis in stock); Reinberg v. Commissioner, 90 T.C. 116, 142
(1988) (petitioners not entitled to depreciation deductions
because they failed to meet burden of proof by establishing
basis).
Petitioners argue that Mr. Farnsworth has basis in the DMAA
contract because he treated the retention amounts as income on
his Federal income tax returns. Petitioners failed to introduce
any documentary evidence to support their contention.
Petitioners do not have copies of Mr. Farnsworth’s Federal income
tax returns from the relevant years to show that he reported as
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